Foreign exchange inflows into Nigeria surged to a five-year high in March as investor confidence has improved on the back of the central bank’s reforms.
According to data obtained from FMDQ’s website, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased by 41.7 percent to $3.75 billion as against $2.64 billion in February – the highest level since March 2019 ($6.07 billion).
Inflows from foreign sources spiked 39.6 percent to $1.54 billion, the highest in over four years.
The data revealed that local sources accounted for 59 percent of total transactions, while foreign sources contributed 41 percent of gross transactions.
Inflows from local sources increased by 43.2 percent to $2.21 billion in March as against $1.54 billion in February.
The increase was driven by higher accretions from individuals (+405.8 percent), non-bank corporates (+157.7 percent), and exporters (+14.6 percent) segments, while inflow from the Central Bank of Nigeria (CBN) declined by 65.7 percent, a sign of the growing maturity of the market.
Overall, total inflows into the NAFEM window averaged $2.47 billion in the first quarter of 2024, compared to $1.34 billion in Q4 2023 and $1.09 billion in Q1 2023.
The improved liquidity in the official market has helped the naira to a three-month high, with analysts expecting the currency to sustain its rally.
A dollar sold for N1,230 at the official market on Monday, up from N1,251 per US dollar last Friday, according to data by FMDQ.
Multiple analysts are expecting the naira to continue its rally as more dollar inflows trickle in.
There’s a $1.05 billion loan from the African Export-Import Bank (Afreximbank) that is expected to come in May that will give the CBN a much-needed dollar boost.
The syndicated loan will be backed by Nigeria’s oil reserves, providing the country with vital funds to further stabilise the naira and revive its economy.
The country also recently announced plans to initiate the issuance of domestic bonds denominated in foreign currency in June.
Analysts say if done properly, the country could unlock a good chunk of the around $30 billion locked up in the domiciliary accounts of Nigerians.
The CBN’s settlement of a protracted foreign exchange forwards backlog has also spurred foreign investors’ confidence, helping pave the way for dollar inflows.
In a note to clients last week, analysts at Renaissance Capital Africa said a ratings agency is expecting $5-10 billion of portfolio inflows over the course of 2024.
The CBN has also stepped up its intervention in the FX market with sales at both the official market and to Bureau De Change (BDC) operators who sell dollars on the streets.
The move has aided the naira’s rally in the unofficial market. The currency strengthened to N1,200 per US dollar on the black market Monday after the CBN adjusted downward the rate it sells dollars to the BDC operators.
The current rate of N1,200 represents a 3.33 percent appreciation compared to the N1,240 per dollar exchanged on Friday, according to data collated from multiple traders.
“Plenty of dollars are in the market now and demand is low. Also, the CBN has brought down the rate for the BDCs,” one trader told BusinessDay on Monday.
The naira has gained 52.08 percent (N625) of its value against the dollar on the black market this year alone.
The CBN reviewed the exchange rate for the BDCs to N1,101 per dollar from N1,251/$1 as it plans to sell $15.88 million to 1,588 eligible BDCs.
