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By Chinwendu Obienyi
Foreign exchange inflows into Nigeria surged in September as offshore investors increased their participation in the market, offsetting a sharp pullback in contributions from local sources, particularly the Central Bank of Nigeria (CBN) and non-bank corporates.
Data from the FMDQ Exchange revealed that total inflows into the Nigerian Foreign Exchange Market (NFEM) declined by 5.7 per cent month-on-month (m/m) to $3.18 billion in September, from $3.37 billion in August.
The contraction was primarily driven by a 32.4 per cent drop in local inflows to $1.42 billion, even as foreign inflows jumped by 38.9 per cent to $1.75 billion during the month.
Local inflows accounted for 44.8 per cent of total transactions, down from 62.3 per cent in August, as funding from the CBN plunged 54.4 per cent m/m.
Non-bank corporates and exporters/importers also scaled back their participation, recording 48.4 per cenf and 3.2 per cent declines, respectively. The only bright spot among local contributors came from individuals, whose inflows nearly doubled, rising 97.3 per cent m/m, likely reflecting growing retail participation and remittance-related activity.
In contrast, foreign inflows, which made up 55.2 per cent of total market inflows, strengthened significantly on the back of higher Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs). According to FMDQ data, FDIs improved by 12.2 percentage points, while FPIs rose by 22.3 per cent m/m, supported by renewed interest in Nigeria’s high-yield environment and gradual improvement in market liquidity.
Within the FPI segment, fixed-income instruments, such as government bonds and treasury bills, drove the bulk of the increase, expanding 25.4 per cent m/m. Equity investments also advanced modestly by 1.3 per cent m/m, underscoring continued investor caution in the domestic stock market amid ongoing currency volatility. The inflows from FDIs and FPIs were sufficient to offset a 16.9 per cent decline in foreign contributions from other corporates. Analysts say the rebound in foreign participation signals growing confidence in Nigeria’s ongoing foreign exchange market reforms and the central bank’s efforts to stabilize the naira. The CBN has implemented several measures in recent months to improve FX liquidity, including interventions in the official market and steps toward a more transparent rate determination mechanism.
Despite the month-on-month decline in total inflows, September’s figures remain above the 2024 full-year average of $2.51 billion, underscoring a gradual recovery in FX liquidity conditions. Market observers expect inflows from both local and foreign sources to stay robust in the near term, supported by sustained investor appetite for naira-denominated assets and improving macroeconomic sentiment.
“Carry trade opportunities remain compelling. As long as monetary policy stays tight and reforms continue, we expect inflows to outperform 2024 levels.”
With foreign investors showing renewed interest and local participants expected to regain momentum in the coming months, the outlook for Nigeria’s FX market remains cautiously optimistic, though vulnerabilities tied to exchange rate volatility and policy implementation risks persist”, analysts at Cordros Research stated.
