That exit from JP Morgan index

Recently the United States-based investment banking and financial services multinational J P Morgan announced its intention to eject Nigeria from its Government Bond Index for Emerging Markets (GBI-EM) with effect from the end of October this year. The real ejection process will commence from the end of September. The bank cited as its reason a […]

Recently the United States-based investment banking and financial services multinational J P Morgan announced its intention to eject Nigeria from its Government Bond Index for Emerging Markets (GBI-EM) with effect from the end of October this year. The real ejection process will commence from the end of September. The bank cited as its reason a complement of measures embarked by the Central Bank of Nigeria (CBN), ostensibly to safeguard the Nigerian economy. Some of the measures that attracted the displeasure of J P Morgan are the refusal to allow further devaluation of the naira and CBN’s rationing of foreign exchange.
According to J P Morgan, once ejected, Nigeria will not be eligible for re-entry into the index for a minimum of twelve months, and such will be only when and if the country fulfils the re-entry criteria. The conditions for re-entry include the establishment of a liquid currency market and what the bank refers to as increased transparency in the country’s economic management.
The implications of the J P Morgan action include the drop in the international rating of the Nigerian economy as a destination for foreign investment, given that such funds seek locations that are promoted by international investment institutions of which the bank is just one. With an asset portfolio of around $210 billion under its management J P Morgan enjoys attention from many international investors who keep track of its ratings of economies. The Nigerian economy is therefore expected to suffer significant reversal in its fortunes with the J P Morgan decision as such will diminish the attraction of the country to international investment agencies. Reportedly the situation has even started impacting negatively on the inflow of foreign investments into the country, as some investors have reportedly started dumping Nigeria’s government bonds.
Nevertheless, while the action of J P Morgan may impose significant stress on the government and people of Nigeria, it is far from being a death warrant. It rather offers the opportunity for the country to re-strategise towards a more sustainable model for managing the economy. The coincidence between its incidence and the posture of the present administration towards effecting change in the management of public affairs in the country could prove auspicious, if properly handled.
 It is significant that the processes that led to the JP Morgan decision actually commenced as far back as January this year, long before the advent of the present administration. Hence the bank’s grouse is actually in respect of the economic policies of a past administration. The initiative therefore translates into a hasty act of holding the Muhammadu Buhari administration accountable for the ‘sins’ of a past one.
Yet given the relationship between the country and J P Morgan, it should have demonstrated the discretion of availing the Buhari administration of the benefit of a new dispensation that needs time to get its act together. After all, it was the bank that invited the country to come on board of its index in 2012 when it found Nigeria’s economy promising. Justified as that expectation may be, it may not enjoy currency with J P Morgan and its partners in global big business, for whom the initiative of the country to salvage the economy now constitutes an unpardonable offence.
Against the backdrop of the foregoing, the entire spectacle accentuates the vulnerability of the Nigerian economy to external pressures, to the extent that a ‘routine’ decision of just one global investment services agency can throw the country’s economy into convulsion. The makes the J P Morgan affair a timely wake-up call which the Buhari administration needs to heed, as it articulates an economic agenda for the country. Rather than cursing the rain, it is better to tap the waters from it.