Capital control approaches to prevent foreign “hot money” from destabilising the capital markets and the real economy is another initiative under consideration. Evidence suggests that external capital flows are highly pro-cyclical and are a source of financial instability. Many believe foreign capital flows contributed to the recent credit bubble, as they were increasingly channelled into non-priority sectors of the Nigerian economy.
Some would advise us to institute “hot money controls” similar to those put in place by Brazil. Without ruling this option out permanently, our present thinking is that the bubble in our market was largely driven by leverage from local banks and any actions now to discourage capital flows may be precipitate.