There appears to be light at the end of the tunnel for Nigeria’s foreign exchange crisis, as fresh data now shows a rise in FX inflows into Africa’s most populous nation.
Nigeria attracted inflows of $1.41 billion into its currency market in June, the central bank said on Thursday, after it scrapped a multiple exchange rate system that used to keep the naira artificially strong.
Nigeria’s central bank lifted restrictions on foreign exchange trading in June and allowed the naira to weaken by more than a third, in one of President Bola Tinubu’s economic reforms, which was welcomed by investors.
The bank said $1.14 billion came into the currency market in May, before restrictions were lifted. It said that the June inflows came from companies and exporters.
Nigeria’s currency market used to trade hundreds of millions of dollars a day before restrictions were introduced in 2017.
The country has faced dollar shortages after foreign investors exited local assets in the wake of previously low oil prices.
Since then, investors have yet to return, and the central bank has not yet settled outstanding demand for dollars from foreign investors seeking to repatriate funds and airlines seeking to send money from ticket sales abroad.
As a result of the shortages, some businesses and individuals have turned to the unofficial black market, where the currency is trading weaker, thereby widening the gap with the official rate.
The naira was quoted at a record low of 920 per dollar on the black market on Thursday, compared with 771 naira on the official market, as importers scrambled to lay hands in whatever dollars they could find.
The FX rate is even more watched by Nigerians today because the price of petrol is now indexed on the dollar rate.
Speaking at his Senate confirmation hearing, Wale Edun, who many expect to become the Finance Minister, said:
“The issue of foreign exchange is clearly uppermost in the minds of monetary authorities. What I can say is this: for a country that has revenue flows from oil revenues, from remittances, from other non-oil exports, and from financing of over $100 billion a year, there is no reason that there should not be a stable exchange rate.
“All other things being equal and provided inflation is kept under control, the N860/$ that we are seeing is not backed up the fundamentals of the Nigerian economy.
“The rate, when you move aside speculation and the fact that there is a result of foreign exchange management practises of the past, the inefficiencies and corruption involved have meant that there is an overhang of unpaid dollar bills, and that is what is putting pressure on the exchange rate, and that is what night and day, the monetary authorities and the monetary team of the president are looking to resolve by raising revenue, by looking at other sources of investment funding, by attracting investment funds, equity funds, and not debt, from around the world interested in investing in Nigeria.” (BusinessDay)
