Hello Tekedia Capital members: the Nigerian stock exchange wants to do what we discussed when it approached us to list some of our portfolio firms in the NGX Tech Board. Yes, our members voted down that option, sending a message to the bourse in an unambiguous way: our startups will consider listing in NGX if you have an option for the deals to be done in both Naira and USD. In other words, people can invest and buy shares in both Naira and USD!

Today, that playbook seems to have gotten an interest: “The Nigerian stock exchange is proposing the inclusion of listings for bonds denominated in dollars, which could potentially extend to stocks as well. The primary objective is to facilitate enhanced foreign currency access for companies operating in the country, according to a Bloomberg report.”

The initiative is being touted to augment other measures announced by the Central Bank of Nigeria (CBN), in the wake of its fresh fight to stop the naira from free-falling in the forex market.

Temi Popoola, the CEO of Nigerian Exchange Ltd., said the focus is on enterprises based within the nation’s special economic free trade zones, as well as those generating foreign currency, per Bloomberg.

“Our primary objective is to enable these companies to issue bonds denominated in dollars and eventually offer equity in dollars as well,” he said in an interview. “It could potentially address the challenges posed by fluctuations in foreign currency.”

Yes, foreign companies which want to invest in Nigerian companies do not need to convert to Naira in the NGX, rather, they can have the option to invest directly in USD. We approve this message because it will help deepen liquidity of US dollars in Nigeria, and help the Naira to strengthen.

Sure, you may argue that as a sovereign nation that Nigeria should not undercut the Naira. That is fair, but for those startups which must pay for APIs, cloud services, etc in USD, anything but USD makes things very challenging! And if you look at this broadly, this can help stabilize the Naira which means a win-win for all.

If you allow Company A to list 20% of its stock in USD and others in Naira, it can raise the 20% to seed a manufacturing boom with USD available to import things. Do not discard this idea. It is key to understand that more than 90% of leading startups in Nigeria price their companies in USD and most have bank accounts in US and UK where that money is paid and kept. If you can convince them to share a small part so that the funds are no more in US and UK, but in Zenith Bank, Fidelity, GTB, etc, you help Nigeria.

Yes, tech valuation and fundraise are already dollarized because the dollar men bring the money as we like our cement, industrials and FMCGs in NGX. This policy is to bring that fund to Lagos.

I understand the patriotism element which is valid. This is a key component. Today, no one can start a decent manufacturing firm which needs imported raw materials in Nigeria because of lack of USD. I hope we look deeper to understand that when other options are limited, anything that can kickstart making things in Nigeria should be evaluated.

Prof you know it will not deepen USD liquidity neither will it stabilise the Naira. Why? Because the USD invested in the stocks will not be available in the I&E window. It is at best hot funds from very risk averse investors.

— Nobleman Okey (@okeyezealah) August 23, 2023

My Response: Why do you think that all funds must go through I&E window? If I do IPO and receive $1m and want to pay for my AWS cloud services, why do I need to go to I&E when I have funds in my Fidelity dorm account?

Comment 1: This is a selfishly formulated policy,Jumia was listed on the NYSE and investors globally(Africans inclusive) invested with dollars not with their local currencies,

If Nigerian tech startups need dollar inflow via sale of shares,they should get listed on the NYSE, not on NGX

Buying Nigerian tech stock listed on the NGX in dollars is a bad idea and I will be glad to see that this idea doesn’t fly.

Comment 1R: Absolutely! Why dollarise our economy when it is not a legal tender by law! Ndubuisi Ekekwe , I don’t support this your new idea but love the other idea where you stated that only manufacturing goods can save the Naira!

My Response: “other idea where you stated that only manufacturing goods can save the Naira!” – unfortunately, you need to kickstart that process since with Naira you cannot even import raw materials. If you allow Company A to list 20% of its stock in USD and others in Naira, it can raise the 20% to seed that manufacturing boom. Do not discard this idea. It is key to understand that more than 90% of leading startups in Nigeria price their companies in USD and most have bank accounts in US and UK where that money is paid. If you can convince them to share a small part so that the funds are no more in US and UK, but in Zenith Bank, Fidelity, GTB, etc, you help Nigeria.

Yes, tech valuation and fundraise is already dollarized because the dollar men bring the money as we like our cement, industrials and FMCGs in NGX. This policy is to bring that fund to Lagos.

The Nigerian stock exchange is proposing the inclusion of listings for bonds denominated in dollars, which could potentially extend to stocks as well. The primary objective is to facilitate enhanced foreign currency access for companies operating in the country, according to a Bloomberg report.

The initiative is being touted to augment other measures announced by the Central Bank of Nigeria (CBN), in the wake of its fresh fight to stop the naira from free-falling in the forex market.

Temi Popoola, the CEO of Nigerian Exchange Ltd., said the focus is on enterprises based within the nation’s special economic free trade zones, as well as those generating foreign currency, per Bloomberg.

“Our primary objective is to enable these companies to issue bonds denominated in dollars and eventually offer equity in dollars as well,” he said in an interview. “It could potentially address the challenges posed by fluctuations in foreign currency.”

Nigeria has been battling to tame its forex crisis, which has seen the naira plunged to N950/$1 in the parallel market. The naira’s free fall is largely tied to low FX earnings from oil exports due to low oil outputs.

Following the inauguration of his administration on May 29, President Bola Tinubu has initiated some reforms, including the removal of fuel subsidies that gulped more than $10bn from the 2022 budget, and the floating of the FX market. However, the reforms have accelerated the naira’s fall, spiking inflation – which hit 24.08% in July.

This backdrop created an urgent need for the government to provide short-term solutions to the volatility of the FX market. While a solution to the crisis impeding oil output remains farfetched, the government is exploring other mechanisms through policies to boost the naira’s value.

Last week, the Nigerian National Petroleum Company Limited (NNPCL) announced that it has secured $3bn emergency crude oil repayment from Afreximbank. The loan is targeted at boosting Nigeria’s foreign reserves, which according to estimates by JPMorgan, have been depleted to $3.7bn – far below the $37bn that the CBN has been posting.

The CBN also announced other policy changes, including new rules for the Bureau De Change operators, which typically brought them back into Nigeria’s regulated FX market.

But despite these efforts, the naira has resumed its woeful performance after making a little gain trading at N840/$1 in the parallel market and N770/$1 at the Investor & Exporter window. As of Wednesday afternoon, the naira was trading around N925/$1 in the parallel market and N769.23 in the I&E window.

This new proposal by the government is seen as bait designed to draw companies and individuals, who keep funds in dollars as a hedge to naira’s volatility, into making them available.

Per Bloomberg, Popoola refrained from specifying a timeframe for the potential implementation of these proposals. However, he noted that the government’s demonstrated interest in comprehensive market reforms is apparent. He said changes to listing regulations can be achieved within a “relatively short time.”

Popoola said in addition to facilitating the listing and issuance of foreign-currency bonds, the stock exchange is collaborating with the domestic Securities and Exchange Commission to revise regulations. This aims to enable specific companies to distribute dividends in dollars.

“Given the proactive stance of the current administration, it is reasonable to anticipate that these objectives can be achieved,” he said.

He noted that both retail and institutional investors possess substantial quantities of dollars that domestic capital markets can leverage to promote increased participation in local listings.

“If the target companies cannot access dollars within our market, many of them may opt to list abroad,” he said.

The BRICS nations of Brazil, Russia, India, China and South Africa, will score own-goals if they think they can use gold to back the planned BRICS currency, which is being designed to rival the US dollars. Here is an advantage of a gold-backed currency as advocates explain: “it provides more stability and certainty to its users and holders, as its value is determined by the market price of gold, which is relatively stable and predictable over time. A gold backed currency also reduces the risk of inflation or hyperinflation, as its supply cannot be increased arbitrarily by its issuer.”

I do not buy  that and this has been my position. In our modern global economy, using gold to back any currency in a free mercantilist economy (you are better by increasing export and trade) is an illusion. Using the US which has data on everything, the nation has about 8,133 metric tons in gold reserves which comes down to about $500 billion.  Simply, if you melt all the physical gold in America, it is not worth up to 25% of the value of Apple Inc. At a deeper level, markets have priced Apple more because it has more value! 

Globally (including the BRICs nations), in all forms and nature including bullions, jewelry, derivatives, private placements, stocks, etc, the value of gold is about $13 trillion. The world economy is about $105 trillion; there is no way gold in all forms will back that economic size, even for the BRICS countries, unless we move to the imperial age.

What that means is that gold cannot support the BRICS currency because of the asymmetrical imbalance where the GDP of China alone is larger than the value of known gold, in all forms, in the world. 

More so, if they adopt a single currency, the flexibility which comes to the independent central banks will go, since that currency will have a supranational apex bank for its governance.  That “ limits the flexibility and autonomy of its issuer to conduct monetary policy according to its economic needs and objectives. A gold backed currency cannot be adjusted in value through interest rate changes, quantitative easing, or exchange rate interventions.”

Russia will not like that because just last week, it used an interest rate hike to save its falling ruble. Under a BRICs currency, that interest rate tool would not be possible for Russia.

Good People, currency union is challenging when economies are heterogeneous in nature, and in BRICS, none seems similar, making welfare losses possible, and that is why BRICS currency will not happen in the near future. Rather, currency swaps will reign!

Ndubuisi Ekekwe served as a currency expert to the African Union Congress, helping on the impacts of a single currency. The ex-banker earned a doctorate in banking/finance with focus on global trade and currency.