In a bid to attract more foreign exchange flow into the country. the Central Bank of Nigeria (CBN) at the weekend rolled out new foreign investment inflow guidelines targeted at portfolio investors.
The Nation Newspaper reports that the guidelines, announced by CBN Acting Director, Trade and Exchange Department, W.D. Gotring, threw 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, said only funds which came in through authorised dealers 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.
In his reaction, Head of Treasury at Ecobank Nigeria, Mr. 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 on Friday, pushed the naira to all-time low of N425 to a 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 Newspaper, 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 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.