Nigeria’s forex inflows surge 57% as naira shows stability

…Inflows via CBN up 127.97% in one month

…FX turnover rises by 180.47% in one year

Foreign exchange (FX) inflows into the Nigerian economy jumped by 57 percent in one year, resulting in the Naira showing some signs of stability.

Analysts attribute the rising forex inflows into the Nigerian economy to consistent policies of the Central Bank of Nigeria (CBN) which have spurred investor confidence and instilled market stability into Africa’s most populous nation.

Data from the CBN seen by BusinessDay showed that Nigeria recorded $8.86 billion in FX inflows in February 2024, higher than $5.66 billion in the corresponding period of February 2023, representing a 57 percent jump over the period.

Similarly, foreign exchange turnover increased by 180 percent year-on-year to $240.64 million in February 2024, compared to $85.80 million recorded in February 2023, the CBN’s economic report said.

Inflows through the CBN rose by 29 percent to $3.26 billion in February 2024 as against $2.53 billion in the corresponding period of February 2023.

On a month-on-month basis, aggregate inflows into the Nigerian economy increased by 80 percent to $8.86 billion, compared with $4.91 billion reported in the preceding month, according to a monthly economic report of the apex bank.

Inflows through the central bank rose by 128 percent to $3.26 billion, from $1.43 billion in the preceding month. Also, autonomous inflows rose by 61 percent to $5.60 billion, from $3.48 billion.

“The upsurge in the FX inflows reflects positive impacts of the increase in the prevailing interest rate and the relative stability of the exchange rate,” Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, said.

He said given the relatively low interest rates in the developed countries, investors are attracted by high interest rates in developing countries, noting that countries that could provide some assurance about the remittance of funds will also be the toast of these portfolio investors.

Olubunmi said the CBN has also continuously engaged the foreign investors. This has provided an avenue to address their concerns and provide information about the activities of the monetary authority.

The naira has been relatively stable, hovering around N1, 500 per dollar at the official market compared to the most volatile period on February 20, 2024 when it was over N1,800/$ and headed for N2,000/$, according to data compiled from the FMDQ Securities Exchange Limited.

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On May 30, the exchange rate stood at N1,484/$ at the official NAFEM market and N1,460/$ at the parallel market. On June 30, it stood at N1,503 at the official market and N1,520/$ at the parallel market. It is not all uhuru, but there have been less surprises and volatility of the local currency recently.

Charlie Robertson, head of macro strategy, FIM Partners UK Ltd, said, “International investors who know Nigeria, recognise that the currency is very undervalued, and that high interest rates are attractive.”

He noted that a few billions have flowed into Nigeria – but this is small compared to the $20 billion plus that has flowed into Egypt. This is partly because interest rates are still lower in Nigeria than inflation rate – while they are nearly the same in Egypt.

Foreign investments into the country rose to $3.38 billion in the first quarter (Q1) of 2024, from $1.09 billion reported in the previous quarter, according to the latest capital importation report by the National Bureau of Statistics (NBS).

Razia Khan, managing director and chief economist, Africa and Middle East Global Research, Standard Chartered Bank, said: “What matters for confidence is what is happening in Nigeria right now – not so much the history of past inflows, but that there was an Open Market Operation (OMO) auction this week with minimal investor interest, and the NGN is under pressure now.”

According to the CBN report, new investments into the economy increased significantly to $1.24 billion, compared with $0.33 billion in January 2024.

Olayemi Cardoso, CBN governor, said last week that investor confidence is back in Nigeria on the back of the ape bank’s clearance of foreign exchange backlog.

On March 20, 2023, the CBN governor announced the clearance of a $7 billion foreign exchange backlog as part of the bank’s overall strategy to stabilise the exchange rate and curb imported inflation, spurring confidence in the banking system and the economy.

The CBN has, since Cardoso became the governor, raised the Monetary Policy Rate (MPR) by 750 basis points to 26.25 percent in May 2024 from 18.75 percent in July 2023.

Nigeria’s inflation rate accelerated to 34.19 percent in June 2024, representing a 0.24 percent increase compared to 33.95 percent in May 2024, as reported by Nigeria’s data agency.

Alatise Yusuf, chief investment officer, Cowry Asset Management, said: “I think the 57 percent increase in FX inflows into the Nigerian economy, from $5.66 billion in February 2023 to $8.86 billion in February 2024, as reported by the CBN, is attributable to several factors. Improved oil production and higher global oil prices have significantly boosted FX earnings. Government and Central Bank of Nigeria (CBN) policies aimed at attracting foreign investment such as several FX policy reforms and incentives, as well as strategic management of the exchange rate to attract foreign investors, have played a role.

“In addition, the increased FDI and portfolio investments seen so far have resulted from a more stable and attractive investment climate. Higher levels of diaspora remittances, possibly due to better official remittance channels and incentives, have further increased FX inflows. With these, we can say efforts to diversify the economy and boost non-oil exports have started yielding results.”

He said on the confidence level, the increase in FX inflows has likely improved investor confidence.

“The normal convention has it that positive trends in FX inflows signal a more robust and stable economy, encouraging investment. Consistent and transparent economic policies enhance investor trust in market stability. Higher FX inflows generally increase the supply of foreign currency, helping to stabilise the naira by easing the pressure, and leading to a more favourable exchange rate,” Yusuf noted.