Nigeria’s stock market has lost its battle for the time being to surpass Egypt’s bourse after Nigerian banks adopted the NAFEX window for Forex trading.
The development is a huge shift for the financial markets of Africa’s largest economy after local banks started using the investors and importers window that further devalues the Naira (NGN).
Nigeria has not fully floated the Naira, but the latest development is a closer move that will see the country’s currency losing more grounds to the Dollar (USD).
Investors have argued that the Naira is over-valued and that a free float will engender investor confidence as the true value of the local currency will be known through demand and supply forces.
There are various implications for these. We could see a retreat in the parallel markets where rates were almost converging with the NAFEX window. Today’s trading activities will further confirm or disclaim fears for analysts who think a rate convergence is far off.
On the positive site, a further convergence might exist where NAFEX and a parallel window will have very little difference. While this might put further strain on the NAFEX window and drought might retreat, it is expected that the parallel market would defray these pressures.
Nigeria’s currency lost more than 70% of its value after the Central Bank of Nigeria agreed last year to remove the NGN197 to USD1 to allow a partial float while creating the interbank window which was elusive to investors and importers.