The Foreign Exchange (FX) market closed for the year 2022, on Friday, with naira losing 23.65 percent (year-on-year) against the dollar at the parallel market, popularly known as the black market.
The market ended the year with the dollar selling at the rate of N740 as against N565 at the beginning of 2022.
Demand for dollars for school fees payments, medical bills, tourism, importation of inputs and other goods are high across major commercial banks.
Faced with limited supply, manufacturers, investors and individuals have resorted to the parallel market to purchase foreign currency.
This, in addition to the new policy on naira banknotes, creates pressure on the naira across board, FSDH research said in its fourth quarter 2022 macroeconomic report.
At the Investors and Exporters (I&E) forex window, Nigeria’s official FX market, naira ended the year 2022 with 8.56 percent (year-on-year) depreciation against the dollar.
The I&E window closed the year with the dollar being quoted at N461.50/$ compared to N422/$ quoted at the beginning of the year, data from FMDQ indicated.
“Nigeria is still challenged with limited FX inflows and high demand for foreign currency to finance imports and service payments.
“Worst still, receipts from oil are dwindling due to oil theft, and monetary tightening in advanced countries are expected to trigger capital outflows from developing countries,” analysts at FSDH research said.
The report noted that since the beginning of the year, investment inflow including portfolio, Foreign Direct Investment (FDI) and other investments into Nigeria have remained far below inflows recorded in 2019 before the COVID-19 pandemic.
Despite the Central Bank of Nigeria (CBN)’s Race to US$200 billion in FX repatriation (RT200 FX programme) which aims to diversify foreign exchange sources with a goal of attracting US$200 billion over the next three to five years, external reserves have trended downwards in recent times.
Nigeria’s external reserves declined by 8.42 percent year-on-year to $37.09 billion as of December 29, 2022 from $40.50 billion recorded at the beginning of the year.
One of the reasons for the external reserves decline according to a report by FBNQuest is due to the exit of foreign portfolio investors (FPIs) from Nigeria.
With limited inflows from exports and low foreign investment inflows arising from a tough business environment, exchange rate is expected to remain pressured in 2023. Efforts to improve the business environment coupled with clarity on foreign exchange policies remain vital in attracting investment into the country, boosting external reserves and ensuring exchange rate stability, FSDH research stated.
To support the fundamentals of the Nigerian economy, diversify from dependence on oil inflows, and minimize the debilitating pressures in the foreign exchange market, the Central Bank of Nigeria launched the RT200 programme in February 2022.
Godwin Emefiele, governor of the CBN, noted that Nigeria’s non-oil exporters have repatriated a total of $4.99 billion, 10 months after the introduction of the RT200 initiative.
He also noted at the last bankers committee retreat in December 2022 that tremendous progress has been made in generating non-oil export revenues in 2022, (approximately US$62 million in quarter one, US$622 million in quarter two, and US$850 million in quarter three), the Bankers’ Committee resolved that the Central Bank of Nigeria should continue to support imports needs of Nigerians through the retail Secondary Market Intervention Sales (SMIS) FX window while the Deposit Money Banks (DMBs) will continue to ramp up non-oil export revenue through increased repatriation of proceeds by exporters.