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FTSE downgrades Nigeria over forex crunch

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Rating agency FTSE Russell has downgraded Nigeria from Frontier market status to unclassified market status over the inability of investors to repatriate capital.

This was disclosed in its latest advisory on the country.

In September 2022, Nigeria was added to the Watch List for possible reclassification from Frontier to Unclassified market status.

FTSE said that this was due to reports it received from index users and market participants that, from December 2020 onwards, there were significant, ongoing delays to the ability of international institutional investors to repatriate capital from Nigeria and in the execution of foreign exchange transactions.

In its latest update on Nigeria’s ranking, FTSE said it has “received feedback from market participants that although Nigeria has adopted a floating foreign exchange rate for the Nigerian Naira in the Investors’ & Exporters’ (I&E) FX Window, which is now operating on a willing Buyer, Willing Seller’ basis, the lack of liquidity in the I&E FX Window continues to adversely impact the ability of international institutional investors to replicate benchmark changes.

“Consequently, as index changes for Nigeria within FTSE Russell equity indices have been suspended since September 2022 and with no improvement in the ability of international institutional investors to repatriate capital at a foreign exchange rate that would be used in FTSE Russell equity indices, following ratification by the FTSE Russell Index Governance Board, FTSE Russell announces that the FTSE Equity Country Classification status of Nigeria will be downgraded from Frontier to Unclassified market status.”

The segments of the foreign exchange market were harmonised in mid-June and the Naira had struggled against the American dollar as its value dipped due to a backlog of unmet forex demands.

Due to the downgrade, Nigerian index constituents will be deleted at zero value (0.0001 NGN) from FTSE Russell equity indices, effective Monday, September 18, 2023.

The indices include the FTSE Frontier Index Series, including the FTSE Frontier 50 Index; the FTSE IdealRatings Islamic Index Series; the FTSE/JSE All Africa Index Series; the FTSE Middle East & Africa Extended Index Series; and the FTSE/MV Exchange Index.

However, Nigeria will be retained in the FTSE ASEA Pan Africa Index Series.

FTSE Russell said that it will continue to monitor Nigeria, and once the foreign currency delays are cleared for a period of time, Nigeria will be assessed as a new market in accordance with its FTSE Equity Country Classification Process.

FTSE Russell is a subsidiary of the London Stock Exchange Group that produces, maintains, licenses, and markets stock market indices.

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