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Tuesday, March 28, 2023

Dollar Shortage Threatens Nigeria’s Frontier Market Status

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Nigeria is poised to lose its frontier market status because of persistent foreign-exchange shortages in Africa’s largest economy.

MSCI Inc. announced in a statement it is considering downgrading the MSCI Nigeria indexes to standalone markets status from the frontier market.

“There has been a continual and severe deterioration in the ability to repatriate funds from the West African Country. Given the prolonged nature of the issues affecting the market’s accessibility, we have put forth the consultation to reclassify the MSCI Nigeria Indexes,” said Craig Feldman, global head of Index Management Research.

Africa’s biggest crude producer has been rationing dollars because of lower oil income that accounts for about 90% of foreign exchange earnings.

The nation’s foreign- exchange reserves have dropped 4% this year to $38.8 billion, despite the government tapping the overseas bond market twice.

Nigeria has devalued the currency three times in the last two years and has a backlog of unmet dollar demand from investors, according to the International Monetary Fund (IMF).

The International Air Transport Association (IATA) said that Nigeria is withholding about $450 million in revenue earned by foreign airlines operating in the country.

Vice-President for Africa and the Middle East, IATA, Kamil Al Awadhi, who stated this at the opening of its 78th annual general meeting and world air transport summit in Doha, Qatar, said as of April, a total of $1.6 billion in funds are blocked by 20 countries worldwide.

He said $1 billion is tied up in 12 African countries, accounting for 67 percent of the total funds. “Nigeria alone is holding back $450 million. It is the most amount blocked by any single African country, and the amount is rising every week.”

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