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By Chinwendu Obienyi
The Director General, Securities and Exchange Commission (SEC), Lamido Yuguda, has said current FX illiquidity concerns should be blamed for the declining interest of foreign investors in the Nigerian market.
Yuguda stated this at the 2022 workshop of the Finance Correspondents Association of Nigeria (FICAN) with the theme: “Boosting Domestic Capacity for Sustainable Export Earnings” which held in Lagos at the weekend.
Speaking on Sustainable Foreign Exchange Earnings: The Regulatory perspective, Yuguda, who was represented by the Director, Lagos Zonal Office, SEC, Hafusat Rufai, said Nigeria, in recent years, has experienced a significant decline in foreign exchange earnings as well as revenues accruable to the federation due to volatility in international crude oil prices, low oil production and oil theft in the country.
This, he said had often resulted in foreign exchange shortages and balance-of-payment problems while adding that these developments have again brought to the fore the important issue of sustainable foreign exchange earnings.
He revealed that historical analysis of the foreign portfolio participation in equity trading on the Nigerian Exchange Limited (NGX) reveals that over the last 15-year period, foreign transactions decreased by 29.38 per cent from N616 billion to N435 billion.
“In 2021, total domestic transactions accounted for about 77 per cent of the total transactions carried out in 2021, whilst foreign transactions accounted for about 23 per cent of the total transactions in the same period.
These are not the kinds of statistics we want, but they have been brought about by sustained forex illiquidity concerns which have resulted in many foreign investors pulling out of the Nigerian market, leading to the decline in foreign participation in the equity market”, Yuguda said.
He noted that despite the Federal Government’s and the Central Bank of Nigeria (CBN)’s efforts towards diversifying the economy and reducing overdependence on crude oil, the Nigerian capital market has a significant role to play in contributing to sustainable foreign exchange (FX) earnings.
“Sustainable levels of foreign exchange earnings and external reserves are the backbone of any nation’s exchange rate. The capital market can attract more foreign portfolio and direct investments which will help stabilize the value of the Naira. To do this, the market must be more competitive, as other markets also seek the same foreign capital inflows.
This is one of the reasons that the 10-year Nigerian Capital Market Master Plan (2015-2025) is built around four strategic themes of which competitiveness is a major strong point of the plan”, Yuguda said.
The SEC DG further said the commission will continue to advocate for a unified foreign exchange rate in order to attract more foreign portfolio investments into the country while adding that it is appreciative of the efforts of the CBN in exchange rate management and will support in whatever way it can to enable achievement of the objective of exchange rate stability.
“Aside from our efforts in attracting more foreign investors into the traditional equities and bond markets, the Commission has also been committed to developing the commodities ecosystem as potent way forward in Nigeria’s quest for sustainable foreign exchange earnings and economic development.
