No capital controls seen for Nigeria anytime soon

There are no prospects for capital controls in Nigeria, anytime soon according to Economist Doyin Salami of the Lagos Business School, who spoke at the Renaissance Capital Africa investor conference, held today in Lagos, Nigeria.

"The challenges we face are not severe enough to see capital controls. There are other means of dealing with our problems without capital controls at this point," said Salami.

That should provide some comfort for foreign portfolio investors playing the naira carry trade who held as much as $11.6 billion of Nigerian bonds and Treasury bills (as at September 2013), equivalent to about 25 percent of Nigeria’s outstanding debt stock. 

While the Nigerian currency has weakened by about 1.5 percent year to date versus the dollar, it has certainly outperformed the currencies of the so called fragile five emerging markets (EM) of Brazil, India, Indonesia, Turkey and South Africa which are linked by vulnerability to current account and fiscal deficits, and most susceptible to the Fed's decision to begin its taper of unprecedented stimulus.

Nigeria with dollar reserves of $42.4 billion (Feb. 7) is also definitely in a better position than Ukraine (whose Central bank imposed capital controls last week).

Ukraine's dollar reserve shrunk to $17.8 billion in January, leaving the $176 billion economy, with less than three months of import cover.

Although with the Central Bank of Nigeria (CBN) spending $2.989 billion in the month of January to defend the naira, the jury is probably still out on whether Nigeria can weather the current EM turmoil without resorting to some form of official devaluation of its currency or perhaps even the dreaded capital control.