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By Chinwendu Obienyi
Foreign investors seeking a return to the Nigerian market would again be waiting for solutions to clear existing FX backlogs and dollar supply challenges following the huge disparity between the Investors and Exporters’ window (IEW) and the parallel market rates.
This comes after the naira exchange rate with the dollar was quoted at N895/$1 at the parallel market, despite appreciating 4.4 per cent to NGN743.07/$1 at the IEW with total turnover at the window (as of 03 August 2023) declining by 15.9 per cent WTD to $334.05 million, as trades were consummated within the N651.00 – N851.00/$1 band.
According to FX traders, the demand for dollar still remains high amid supply shortages across the country. Daily Sun investigations revealed that the situation has triggered about N120/$1 disparity between the official and parallel market rate over the last few months since the unification of the exchange rates markets was announced.
The exchange rate disparity was a major trigger for the introduction of the revised foreign exchange market forcing authorities to ease foreign exchange controls in mid-June to simplify its monetary regime.
However, the move appears to have led to heightened volatility in the black market, driven by strong demand from manufacturers, importers, students, and travelers.
According to the data obtained from FMDQ, total inflows into the IEW declined by 65.7 per cent month-on-month (m/m) to $608.00 million in July (June: $1.77 billion) – the lowest level since April 2021 ($564.20 million). The decline was on the back of broad-based contraction across both the local (92.3 per cent of total transaction value) and foreign (92.3 per cent of total transaction value) investors.
Specifically, inflows from local investors dipped by 60.6 per cent m/m to $561.00 million in July (June: $1.42 billion), given the slowdown across the local segments – CBN (-70.0 per cent m/m), Individuals (-51.2 per cent m/m), Non-bank corporates- (-65.6 per cent m/m) and Exporters (-63.9 per cent m/m). In the same vein, inflows from foreign sources remained underwhelming, decelerating by 86.5 per cent m/m to $47.00 million (June: $347.30 million) as foreign investors remained cautious about returning in their droves.
Although, Nigeria’s FX reserves increased by $13.14 million week-on-week (w/w) to $33.97 billion at the weekend, economic analysts say that they expect currency pressures to remain intact in the near term given seasonal-induced demand and still frail FX supply despite the CBN’s abolishment of its multiple FX windows.
Analysts at Cordros Research said, “Looking ahead, we expect FX liquidity conditions to remain frail in the near term, amid the lingering reforms in the FX market. We also anticipate weak foreign inflows in the short term, as foreign investors will likely adopt a wait-and-see approach in the near term as they await the CBN’s actions in clearing its FX backlogs and the direction of short-term interest rates amid high inflation”.
