No break to Nigeria’s Naira problem

ABUJA - Nigerian officials are increasingly confident the naira’s troubles are over for good. Some investors disagree.

Portfolio inflows have risen in the past three months with crude prices increasing above $60 a barrel and money managers taking heart from a new foreign-exchange trading window, in which the naira has converged with the black-market rate.

That prompted central bank Governor Godwin Emefiele and Patience Oniha, the head of the nation’s Debt Management Office, to tell investors in London on October 27 that the currency was set to strengthen. Finance Minister Kemi Adeosun concurred, saying on November 2 the government sees no significant exchange-rate risk as it prepares to raise $5.5 billion of Eurobonds

But Nigeria’s system of capital controls, multiple exchange rates and the trading window known as Nafex would struggle to survive a drop in oil revenue or sentiment turning against emerging markets, which may come as the U.S. Federal Reserve raises interest rates, according to investors including Ashmore Group Plc and Standard Life Aberdeen Plc.

“At the moment, it’s easy for them to manage the current system and muddle through,” said Brett Rowley, a managing director at TCW Group Inc. in Los Angeles, which oversees $200 billion and recently started buying naira debt again after pulling out during the 2014 oil crash.

“That could change if we got a significant drop in crude production or prices. That would be a key test to reassure investors they can get their money out even in times of stress.”– BLOOMBERG