Financial analyst offers tips for bolstering naira

Against the background of increasing concern over the dwindling fortunes of the naira, respected financial analyst, Mr. Jude Fejokwu, has offered tips on how the monetary authorities can halt the local currency’s decline. In a note made available to the New Telegraph, Fejokwu, who isthe Founder, Managing Director and Principal Analyst at ThaddeusInvestment Advisors and Research Limited, said, “The naira has to be made more attractive as a currency to hold.” He said such a move “will encourage those who are hoarding dollars for speculative and legitimate reasons to sell their dollar and acquire naira.

There will also be dollar inflows by fixed income portfolio investors and Nigerians in the Diaspora. Coupon rates on government bonds should rise to at least 20 per cent and those selling dollars to purchase the bonds will be given first priority. The government will also assure investors of a fixed exchange rate (within a narrow band of 2 per cent) when they decide to exit the bond. There will be a 25 per cent penalty on accrued interest for any investor that exits their position less than 12 months after purchase.”

This he said will attract huge dollar inflows to take advantage of the high coupon rates in conjunction with the assured stability on exchange rate conversion. “A form of this is already being practiced in Malawi since last year and has made Malawi Africa’s best performing currency so far in 2015. The Malawian Kwacha has appreciated against the dollar by about 5 per cent in 2015,” the expert noted. He further stated that the top 75 companies by market capitalisation on the Nigerian Stock Exchange (NSE) must have American Depository Receipts (ADR) on them at the New York Stock Exchange with a market maker in place, adding that fungibility of shares must be allowed.

“I can buy Zenith Bank in Nigeria and sell my position as an ADR in New York City and vice versa. This becomes a veritable way for people to source dollar and boost demand for Nigerian stocks at the same time. This second option creates a secondary outlet for dollar demand independent of the Central Bank of Nigeria CBN),” he stated.

The Thaddeus Investment Advisors boss noted that the naira has limited use because of Nigerians’ heavy dependence on imported goods. It would be recalled that the about 50 per cent drop in the price of oil between June last year and January 2015, resulted in the depletion of the country’s foreign exchange reserves, leading to a slide in the value of the naira. Despite various measures by the CBN to stem its decline, the local currency has continued to plummet against the dollar on the black market where it currently exchanges at about N242 to the dollar.