Foreign exchange (forex) inflows into the Investors & Exporters Window (IEW) of the Nigerian forex market rose to $1.85 billion in December 2022, about 87.7 percent higher than $984.50 million in the month of November, the highest level of monthly inflows in 12 months.
The I & E window of the foreign exchange market was created in 2017 by the Central Bank of Nigeria (CBN) to facilitate easy access to foreign exchange by investors and exporters at the official rate fixed by the apex financial industry regulator which is usually much lower than the parallel market rate.
When a dollar, for instance, exchanges for N450 per dollar at the I & E window, it may exchange for N750 per dollar at the parallel market, thus creating room for arbitrage or rent-seeking by unscrupulous currency dealers. Dollar supply shortages across Nigeria’s financial markets have made matters worse.
Analysis of the breakdown of forex inflows into the Investors & Exporters Window indicated that the significant increase was primarily driven by the local sources which rose sharply by +110.3 percent month-on-month to $1.74 billion, as against a -30.6 percentage decline to $109.80 million inflows from foreign investors who have remained on the sidelines.
Conversely, inflows from exporters during the yuletide season remarkably rose to their highest level in six months increasing by +88 percent year-on-year to $819.10 million. Analysts at Lagos-based Cordros Capital attributed the sharp increase to the impact of the Central Bank of Nigeria’s (CBN’s) rebate scheme to attract non-oil exports tagged RT-200 even as they pointed out that despite the seeming improvement in December, the inflows remained lower than the 2021 full year and pre-pandemic level (2019 full year).
“Notwithstanding, we note that the average monthly inflows to the IEW in 2022 full year ($1.24 billion) was 2 percent and 57.4 percent lower than 2021 full year and pre-pandemic level (2019 full year), respectively,” the analysts wrote in an emailed message over the weekend.
According to them, the preceding outlook of low inflows indicates that foreign exchange (FX) illiquidity remains intact two years after the COVID-19 pandemic distorted the supposedly smooth functioning of the economy.
The RT-200 otherwise called Race to $200bn in FX Repatriation (RT-200) programme was instituted in February 2022 with the goal of repatriating $200 billion of non-oil export earnings over the next five years. The main component of this programme is a rebate scheme to encourage the repatriation and sale of export proceeds into the FX market.
This initiative notwithstanding coupled with regular interventions by the apex bank, Nigeria’s foreign exchange liquidity crisis has remained a matter of serious concern necessitating drastic monetary decisions by CBN at irregular intervals.
“We believe FX liquidity conditions will remain frail over the short-to-medium term in the absence of reforms to attract dollar inflows to the economy. The low FX liquidity conditions will also be driven by the lingering heightened global uncertainties and higher global interest rates, limiting foreign inflows to the economy,” the financial analysts stated in the report.
Meanwhile, the naira appreciated by 0.1 percent to N461.50 per US Dollar at the I and E window, with total turnover at the window increasing by 10.6 percent week-to-date to $527.52 million, as trades were consummated within the range of N440.00 to N478.80 per dollar as of January 19.
In the Forex market, there was depreciation recorded across the 1-month (-0.6% to N479.62 per dollar), 3-months (-0.9% to N486.55 per dollar), and 1-year (-1.4% to N531.47 per dollar) contracts. However, the rate appreciated at the 6-month (+1.9% to N500.42 per dollar) contract.
