July 28, 2016

Portfolio Diversification Between Developed And Less Developed Economies

This study
examines the hedging effectiveness of portfolio investment diversification
between developed and developing economies; with focus on the Nigerian stock
asset vis–vis the stock assets of the United States (US) and United Kingdom
(UK). Its main contribution is in the analysis of optimal portfolio
diversification using optimal portfolio weight (OPW) and optimal hedging ratio
(OHR). Empirical findings show that the OPW and OHR are low, which indicates impressive
potential gains from combining Nigerian stock assets in an investment portfolio
with US and UK stock assets. In addition, exchange rate volatility is found to
pose stern limitation on the potential benefits of this portfolio
diversification arrangement. It is therefore recommended that the monetary
authority in Nigeria should pursue policies towards reducing exchange rate
volatility to the barest minimum. This will possibly attract more investors
from developed economies who might be willing to combine Nigerian stock in
their investment portfolio to minimize portfolio risk.

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Nigeria Economic Update (Issue 13)

Recent Data on Nigerias Real GDP growth rate (Year-on-Year) declined by 0.73 percentage points, from 2.84 per cent in 2015Q3 to 2.11 percent in 2015Q4. The slowdown in economic growth was largely driven by the decline in the performance of the oil sector which was occasioned by the slump in crude oil prices and the slight drop in the volume of crude oil produced. Specifically, compared to the 1.05 percent growth recorded in 2015Q3, the oil sector witnessed a negative growth of 8.28 percent in 2015Q4.

Nigeria Economic Update (Issue 27)

The Naira strengthened against the dollar in the review week. Specifically, the Naira appreciated by 2.7 percent to N355/$ (parallel market rate) on June 17, 2016, following the release of the flexible FOREX policy guidelines by the CBN on June 15, 2016. The new policy effectively adopts a single market structure hosted at the autonomous/inter-bank market. The inter-bank trading scheduled to commence on June 20, 2016 will be market-determined, officially eliminating the N197/$ peg. To ensure foreign exchange liquidity, primary market dealers have been introduced while the CBN will participate in the market through periodic interventions.

Climate Policy And Finance

Carbon pricing has been recognized not only as the most efficient economic policy instruments to internalize the social cost of emissions, but also as a major tool to generate public revenues that can be used to offset the potential adverse distributional effects of climate policy. However, in many developing countries, there is a widespread reluctance to commit to climate policy, largely due to financial constraints, a lack of public support, and concern over its regressive effects.This paper makes recommendations towards the design of an effective carbon pricing system that not only discourages air pollution but also encourages the gradual uptake of climate-friendly technologies by the private sector in Nigerias oil and gas sector, while supporting public investment in sustainable infrastructures and projects that offset the distributional effect of the climate policy.

Nigeria Economic Update (Issue 10)

Nigerias inflation rate remained above CBNs bandwidth of 6-9 per cent. Specifically, the inflation rate increased slightly from 9.55 percent in December 2015 to 9.62 percent in January 20165. The Core sub-index remains the main driver of inflation in Nigeria. The higher prices of items in the Core sub-index such as clothing and foot wears are reflective of higher domestic production costs as a result of the decline in the value of the naira relative to the dollar. However, in the period, the price increase was moderated by the stable price of Premium Motor Spirit (PMS). Going forward, without any sustainable policy measure to prevent the further depreciation of the naira, inflation may exceed the current single digit inflation rate in the near term.