Last week, the IMF/World Bank annual spring meeting for 2019 was concluded. Apart from increased flexibility, the harmonization of the multiple exchange rate system and removal of FX restrictions were some of the key recommendations made for Nigeria.
If historical trend is anything to go by, we know that the CBN often hold FX rates above its fair value till unbearable pressure builds up to necessitate a devaluation.
Hence, investment in a dollar-denominated instrument such as Eurobonds often makes economic sense over the medium to long term.
Currently, Nigeria is the third largest issuer of Eurobond in Africa. Large corporate issuers are also tapping into Eurobond market, with Ecobank Transnational Incorporation joining the fray last week with a $450 million issue at 9.75%.
For retail investors, investing in a Eurobond Fund is, perhaps, the easiest way to benefit. Typically, a Eurobond Fund is a mutual fund designed to pool fund from different individuals, ordinarily unable to directly invest in a Eurobond, to benefit from same at a competitive return on investment rather than holding dollar savings in a domiciliary account which yield little or no interest.
Beside capital gain, additional benefits of investing in a Eurobond Fund include: portfolio diversification into relatively stable dollar asset; provides an avenue to hedge investment against currency risk and the tax advantage that mutual funds offer as returns are not subjected to withholding tax.