World Economy

Nigeria Gleaning Rewards From Currency Slump

Nigeria Gleaning Rewards From Currency Slump Nigeria Gleaning Rewards From Currency Slump

More than two months after Nigeria allowed its currency to devalue, the country is starting to reap some dividends.

In the past two weeks, Exotix Partners LLP and Standard Bank Group Ltd. have told clients, most of whom fled after the country started imposing capital controls from late 2014, that they should start buying naira assets again.

The worst-performing currency this year among more than 150 globally has depreciated 38% against the dollar since the central bank abandoned its peg on June 20, while bond yields have jumped to more than 20%. The naira strengthened 3.6% to 318 per dollar on Tuesday after falling to a record 350.25 on Aug. 19, Bloomberg reported.

“The cheap naira is attracting foreign investors,” said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment, which oversees about $12 billion of assets. “At 325 per dollar, the naira is too weak” and Landesbank anticipates a rebound, he said.

Roehmeyer’s funds have doubled their holdings of naira debt, albeit in the form of bonds issued by the World Bank’s International Finance Corp. rather than the Nigerian government, to the equivalent of around $9.2 million this month, he said.

Nigeria’s central bank Governor Godwin Emefiele fixed the currency in February 2015 at 197-199 per dollar to stop it plunging amid the decline in the price of oil, on which Nigeria depends for 90% of exports and the bulk of government revenue. He relented after 16 months as the country stumbled toward a recession, while foreign reserves fell to their lowest level in 11 years.

The naira has now weakened more than any other major oil currency since mid-2014, when the crude price started retreating. It’s lost almost half its value against the dollar in that period, compared with 46% for Kazakhstan’s tenge and 35% for the Colombian peso.

That makes it a good time to buy Nigerian one-year treasury bills with yields of about 22%, Stuart Culverhouse, chief economist at Exotix in London, wrote in an Aug. 9 note. The potential return is more than 33% if the naira strengthens to its fair value of 290 against the greenback, he said. In April, one-year T-bills yielded just 10%.

The trade is not for everyone, given Nigeria’s outlook. The economy will shrink 1.8% this year, its first contraction since at least 1991, the International Monetary Fund forecasts. Oil production has sunk to a near three-decade low of about 1.5 million barrels a day as militants attacked pipelines and export terminals in the south of the country.