Portfolio investors now use newgold traded funds to move capital from Nigeria to South Africa, say analysts

By Charles Abuede

• Investors pay about 14% more to buy shares in Nigeria and transfer to Johannesburg

Equity analysts have revealed that portfolio investors are using the gold exchange-traded funds (ETF) to pull cash out of Nigeria amid on-going dollar shortage in the country.

It is a move which is resulting in capital flight out of the economy into more liquid market after investors discovered how worthy it is to get assets out of Nigeria.

Akinbamidele Akintola, equity analyst at Stanbic IBTC Stockbrokers, disclosed that there is a new discovery by portfolio investors to pull funds out of Nigeria’s equities market to the Johannesburg stock exchange.

“The ETF has been listed on the NSE for a few years and frankly, nobody cared to look at it until June, The market discovered that there is fungibility play here to get money out of Nigeria to the Johannesburg stock exchange,” Akintola wrote.

A report by the newswire Bloomberg notes that the exchange-traded funds (ETF) have been extolled for everything, from democratizing asset investment to making better market liquidity, but that this, savvy investors in Africa have hit on a less obvious benefit.

Bloomberg noted that foreigners are using gold ETF to haul cash out of Nigeria in the midst of the country’s ongoing dollar shortage. The report also revealed that portfolio managers are buying the Newgold Issuer Limited ETF in Lagos, using the naira and transferring holdings to the fund’s primary listing in South Africa and sell for rands.

Generally, the dollar is obtained in Nigeria’s Investors’ and Exporters’ segment, but the apex bank halted sales of the dollar about nine months ago only to resume its sales in October. Thus, the proceeds currently average about $150 million, down from around $300 million to $400 million at the beginning of the year.

But, Nigeria, the largest economy in Africa, has been wrestling with the shortage of the dollar shortly after the coronavirus outbreak and the fall in the price of oil, a major source of foreign exchange earnings for the country.

Meanwhile, from the latest data on the Nigerian Security Exchange Commission’s website, about N50 billion worth of shares in the fund have traded in 2020 compared to the N60 million recorded for the previous year.

However, the data also revealed that assets have surged to N17 billion, over 20-times the January level. This means that activity in the fund has soared on year to date, while investors considerably pay about 14 per cent more to buy the shares in Nigeria, at about N7,650 a-piece in Lagos.