Nigeria’s Gray List Exit Could Boost Investor Confidence, Ease Capital Inflows

Nigeria is on track to exit the Financial Action Task Force (FATF) gray list next month, a development expected to improve investor sentiment and ease capital inflows into Africa’s largest economy.

The FATF, a Paris-based global watchdog against money laundering and terrorist financing, placed Nigeria on its gray list in February 2023 for deficiencies in tackling illicit financial flows.

Countries on the list are subject to increased monitoring and enhanced due diligence by global investors, a designation that has weighed on capital movement and investor perception.

According to people familiar with the matter, assessors from the FATF conducted an on-site inspection in recent weeks and provided favorable feedback on Nigeria’s progress in implementing its action plan.

The final decision is expected at the FATF plenary scheduled for October 24 in Paris.

A 2021 International Monetary Fund (IMF) report noted that gray-listed countries experience a “large and statistically significant reduction in capital inflows.”

Nigeria’s exit would signal to international investors that reforms in anti-money laundering (AML) and counter-terrorism financing (CTF) measures are credible and sustainable.

Lauren van Biljon, senior portfolio manager at Allspring Global Investments UK Ltd, said the delisting “would certainly be good for sentiment” as it confirms that the reforms are significant and enduring. While the direct market impact may be modest, analysts expect a short-term lift in Nigerian asset prices.

The Nigerian Financial Intelligence Unit and the Ministry of Finance have yet to issue an official statement. However, government officials previously expressed optimism that the country would exit the list in 2025 after completing the majority of FATF’s recommended actions.

The FATF’s decision will be closely watched by global markets, as its recommendations are widely relied upon by financial institutions in assessing country risk.

A positive outcome for Nigeria could ease concerns among international banks and investors, potentially unlocking new flows of foreign direct investment and portfolio capital.