By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-Nigeria investors are missing out on the global rally in fixed income as the country suffer from the plunge in oil prices and falling currency, a Bloomberg report said.
The report affirmed that average yields on naira government debt climbed up 2.5 percentage points in the past three (3) months, compared with a drop of 47 basis points for emerging-market local-currency securities, a Bloomberg indexes said.
According to the report, Nigerian bonds were the worst performers after Russia among 31 developing nations in the review period, losing 16 percent for dollar investors.
Nigeria has depended on crude exports to generate 70 percent of government revenue, however, the 60 percent decline in prices of oil since last year’s peak in June has sparked investor outflows from the nation; which authorities have tried to check by devaluing the naira and raising interest rates to a record 13 percent.
According to Standard Bank Group Ltd, with an election next month, markets are seeking assurances that government official are ready to cut spending and devalue the currency again, steps needed to revive the economy.
Bloomberg quoted Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank in Johannesburg, as saying by phone on January 14, are investors starting to get spooked? I think so. The broad market weakness in Nigeria indicates there is concern,” Ramkhelawan-Bhana added.
“Even before the oil-price collapse, there were chinks in the Nigerian state’s armour. There were concerns about the fiscal position, and the oil price has intensified those concerns,” the economist at Rand Merchant Bank affirmed.
On February 14, President Goodluck Jonathan of the People’s Democratic Party (PDP) will contest for the presidential poll against Muhammadu Buhari, a former military leader in what is believed to be the stiffest opposition of the PDP since coming to power in 1999.
‘’The security risks are weighing on Nigeria’s debt as the Federal Reserve prepares to raise interest rates, increasing competition for investment among developing nations,’’ Stephen Bailey-Smith, head of Africa strategy at Standard Bank said.
Bailey-Smith has an underweight recommendation on Nigeria’s dollar debt, which is rated three (3) steps below investment grade at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
According to him, yields on naira debt due 2024 climbed up 198 basis points since the beginning of December to 15.31 percent as at Thursday, ‘’while rates on Nigeria’s $500 million of Eurobonds due in July 2023 jumped 146 basis points in the period. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of about 1.16 percent as of yesterday, an all-time low based on data starting in 1996,’’ the head of Africa strategy at Standard Bank said.
In December Ngozi Okonjo-Iweala, Nigeria’s finance minister proposed cutting the 2015 budget by 8 percent as falling crude erodes revenue.
Bailey-Smith says beyond any spending cuts, Nigeria needs to further devalue the naira to maximize returns from crude exports, according to Bloomberg.
On November 25, the Monetary Policy Committee (MPC) of the Nigeria’s Central Bank moved the naira to 168 per dollar from 155 with its trading band widened to 5 percent either side from 3 percent, the report noted.
The naira weakened 0.1 percent to 185.95 per dollar by 9:06 a.m. in Lagos, bringing its decline in the past 12 months to 14 percent.
“If oil is structurally weak, you have to have a major policy shift to deal with that, and until you have a new government, you won’t have that. For now, I’m fairly bearish,” Bailey-Smith said.
