Global index provider MSCI Inc. has announced it will require additional time to evaluate Nigeria’s foreign exchange (FX) reforms, delaying any potential reclassification of the country’s market status. This means Nigeria is unlikely to regain its position in the MSCI Frontier Markets Index during the upcoming annual classification review slated for June 24.
MSCI acknowledged improvements in Nigeria’s FX liquidity due to recent operational changes but emphasized that uncertainties remain. The company stated in its annual market accessibility report that while reforms have been introduced, “more time is needed to assess the impact of these changes.”
Nigeria was removed from the Frontier Markets Index in February 2024 following prolonged challenges that made it difficult for foreign investors to repatriate dividends and profits. The absence of reliable FX liquidity had rendered portfolio investments riskier and less appealing.
An upgrade in status would typically lead to increased foreign capital inflows, as inclusion in MSCI indices often drives global fund allocations toward the country’s assets. However, MSCI highlighted persisting regulatory opacity, including limited access to onshore currency market rules and shareholding information within the banking sector—factors that continue to hinder investor confidence.
“Upgrades prompt a short-term wave of enthusiasm accompanied by capital flows, including ahead of the upgrade taking effect,” analysts at London-based Dragon Capital noted earlier this month.
The Nigerian government has taken several steps to boost investor interest, including President Bola Tinubu’s decision in 2023 to loosen the naira’s peg against the U.S. dollar. This move, while painful in the short term—causing a 70% devaluation—was part of broader reforms aimed at stabilizing the currency and enhancing market transparency.
Still, MSCI concluded that key areas of concern remain unresolved. These include currency market restrictions and the limited availability of regulatory data, both of which continue to raise caution flags for foreign stakeholders.
With MSCI’s decision, Nigeria remains ineligible for reintegration into the widely tracked Frontier Markets Index, a status that could otherwise help boost investor participation and valuations. The announcement dims hopes for a near-term boost in portfolio inflows, even as broader economic reforms continue.
