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Why rising external reserves fail to attract real foreign investor

An Economist, Dr. Ken Igboanugo has given an insight as to why little or no foreign investors have decided to rely on the blossoming external reserves to arrive Nigeria for investment in recent time.

The Central Bank of Nigeria (CBN) recently revealed that the nation’s external reserves have hit $34bn from $33.6bn attained on October 25.

The apex bank further noted that the reserves have been appreciating very fast after hitting $32bn on September 18.

However, Dr. Igbanugo said in a telephone interview on Monday that “First of all, it takes more than the level of rise in national foreign reserve to attract a credible foreign investor”.

“Foreign investors look out for strategic things that drive international investments including repatriation policy, availability if business enabling infrastructure, stability of exchange rate, tax policy, manpower, peace and strength of local currency.

“Now, even though the reserve is rising which is due to rising oil price, other factors to me are not salutary to any credible investor unless all these portfolio investors who are; to me, killers of the economy.

“Yes, they are killers because at the moment they felt that the economy is no more favourable, you will not even know when they will exit.  Look at them, they are all these lottery and gaming companies. To me they do not add any value to the economy, rather they are parasites killing the ailing economy, yet they are celebrated as foreign investors.

The Deputy Governor, Financial System Stability, CBN, Dr. Joseph Nnanna, had disclosed the latest figure in Lagos on weekend, assuring that “the exchange rate stability achieved so far by the apex bank had come to stay”.

“The usual end-of-the-year rush would not push up the naira-dollar exchange rate contrary to some people’s expectations.

The interim of 9Moblie, Dr Nnanna noted further that “No, the rate will not go up, take it from me. We have achieved stability and the stability is here to stay”.

“The sustainability is already evident, the reserves are growing. As I speak, the reserves are $34bn. When we had volatility, the reserves were as low as $20bn. But let me say one thing: Nigeria can make do with a reserve level of $20bn but it is the press who gives the impression that if the reserves fall below $30bn, then there is a problem.

“No, there is no problem. All we need to manage the economy and manage it properly is reserves that can cover at least three months of import. And in fact, as it is, $10bn or $12bn can give us reserve coverage of four months.”

According to him, “Our exchange rate is convergent; we are getting southward. In the IMF, they talk about the need to have one rate. The one rate can happen organically or inorganically. For us at the CBN, we believe that organic convergence is the way to go. Inorganic convergence, which is forced, will always produce an arbitrage and that we don’t want”.