News
The Central Bank of Nigeria (CBN) has rolled out new foreign
investment inflow guidelines targeted at portfolio investors.
The guidelines, announced by CBN Acting Director, Trade and
Exchange Department, W.D. Gotring, throws the field open to foreigners to
invest in Treasury Bills (T-Bills), Federal Government Bonds, certificates of
deposit, commercial paper, bankers’ acceptances, and repurchase agreements.
These instruments have maturities ranging from one day to one year
and are extremely liquid.
The CBN acting director, however, stated that only funds that came
in through authorised dealer by resident/non-resident Nigerian nationals and
companies specifically for the purpose of investment would be eligible for the
transactions.
Consequently, balances on exports domiciliary and ordinary
domiciliary accounts shall not be eligible for investment.
Reacting, Head of Treasury at Ecobank Nigeria, Olakunle Ezun, said
the announcement, was in line with CBN’s renewed drive to attract more dollar
inflows into the economy, in the face of continued dollar scarcity which
yesterday, pushed the naira to all-time low of N425 to dollar in the parallel
market. He described the policy as a welcome development.
CBN’s devaluation of the naira in June when the flexible foreign
exchange policy was announced was meant to provide the much desired stimulus and
foreign portfolio investment needed to boost investments in the capital market.
Gotring in a circular entitled: Portfolio investment in Nigeria
Re: Amendment of Memorandum 21 of the Foreign Exchange Manual, sighted by The
Nation, admitted that the new guidelines were aimed at encouraging portfolio
investment into the country.
“In the continued effort to encourage portfolio investment in
Nigeria, Resident National and/ or companies who in flowed foreign currency
through an authorised dealer (commercial bank) are henceforth allowed to invest
such funds in a money market instruments, bonds and equities,” he said.
Accordingly, the amendment of the provision of Memorandum 21 of
the Foreign Exchange Manual, says : “A
resident/ non-resident Nigerian national and /or entities and foreign national
entity may invest in Nigeria by way of purchase of money market instruments
such as commercial papers, Negotiable Certificates of Deposits, Bankers
Acceptances, Treasury Bills, among others subject to the meeting specified
documentation requirements”.
He said that such investor should however provide tested Society
for Worldwide Interbank Financial Telecommunication (SWIFT message) to allow
financial and non-financial institutions to transfer financial transactions
through a ‘financial message’.
The SWIFT message, he said, should show the remittance of funds;
board resolution of the local beneficiary authorizing the investment (in the
case of company); purpose of capital importation specified in the SWIFT message
and evidence of incorporation where applicable.
The CBN also defined the procedure for resident/non-resident
Nigerian nationals and companies investing in portfolio investment, which
include that prospective investors appoint a local bank or broker as an agent
to purchase the instruments.
Besides, the funds for the investment should be transferred
electronically to a designated bank while on receipt of the funds, the bank
should issue the investor with certificate of capital importation within 24
hours.
According to Gotring, authorised dealer shall keep separate
records of the investment and render returns to the apex bank in format that
will be advised from time to time.
“With the certificate, the investor through the bank or broker
enters the market; invests in any instrument of his choice. If at any point in
time the investors want to divest, he shall go back to the bank with
Certificate of Importation and evidence of redemption of the money market
instrument,” Gotring said.
Analysts believe that the money market is important for businesses
as it allows companies with a temporary cash surplus to invest in short-term
securities; conversely, companies with a temporary cash shortfall can sell
securities or borrow funds on a short-term basis. In essence the market acts as
a repository for short-term funds.
The suppliers of funds for money market instruments are
institutions and individuals with a preference for the highest liquidity and
the lowest risk.
The figures on the Nigeria Stock Exchange’s domestic & foreign
portfolio report released in March 30, showed that foreign portfolio investment
outflows rose by 108.2 per cent to N58.2 billion ($292.32 million) from N27.95
billion (140.4 million) between January and February this year.
Several foreign companies that were for years, drawn to Nigeria by
the prospect of a population and other issues are now exiting the economy as
they struggle to secure the needed foreign exchange for their businesses. The
devaluation and reversal of the short-term instrument investment guidelines
were meant to bring back the exited investors.
Credit: The Nation.
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