Market News

By EMEKA EJERE

Hope of improved remittances shoring up the naira in the days ahead may have been dashed, with latest figures showing that increased demands for foreign exchange for foreign travel, school fees, and the planned food import duty waiver have pushed the naira to a fresh depreciation spree.

Nigeria has received more remittances and other inflows over the past year, contributing to an increase in the foreign currency reserves, also known as external reserves, but the inflows have failed to strengthen the naira.

According to the Central Bank of Nigeria (CBN), the economy recorded $553 million in remittances in the month of July, the highest ever. Total direct remittance inflows increased by 129.46 percent to $553 million in July 2024 from $241.22 million in July 2023. The remittances rose by 22.66 percent to $241.22 million in July 2023 from $196.66 million in July 2022.

Other inflows that came into the country’s economy within the period included: $3.3 billion AfreximBank oil facility, and $2.25 billion from the World Bank Group.

During the same period, Nigeria’s external reserves, which give the apex bank the firepower to defend the naira, increased by 8.36 percent. The data obtained from the CBN’s website showed that the foreign currency reserves rose to $36.79 billion as of July 31, 2024 from $33.95 billion recorded on July 28, 2023.

However, the Nigerian currency, which had opened September on a positive note across the segments of the currency market, weakened by Tuesday on the back of heightened demand.

On the unofficial market, the naira had been quoted at N1,635 on Monday; however, by Tuesday, it had worsened to N1,640, according to some Bureau De Change operators in Lagos. As of Friday, some BDC operators said they sold dollars at the rate of N1,670 and bought at N1,665.

“Dollar has gone up since yesterday. Dollar is scarce in the market,” a BDC operator, Musa Abbah, said when asked about the sharp increase,

On the official Nigerian Autonomous Foreign Exchange Market domiciled on the FMDQ Securities Exchange, the naira gained 0.81 per cent or N12.79 as the dollar was quoted at N1,585.77 compared to N1,598.56 quoted in the previous trading session.

At the close of trading on Thursday, the naira stood at N1639.41/$, marking a 0.83 per cent decline or N13.53 depreciation in the value of the naira between the two trading periods. The volume of traded dollars also dropped by 9.7 per cent to $185.79 from $205.76m on Wednesday.

FMDQ data on Friday indicated that the naira closed at N1593.32/$, a 2.81 per cent appreciation from N1639.41/$. The daily turnover also rose to $245.17m from a low of $185.79m.

Asset management firm, Afrinvest, in its monthly market report for August, had projected that the naira would be under pressure if supply was not boosted.

“In the absence of a significant inflow to boost FX supply, we expect the naira to be pressured in the month, due to the seasonality effect, as PTAs and BTAs demand peaks,” a portion of the report read.

In terms of foreign exchange inflow, CBN governor, Olayemi Cardoso, in an interview with Bloomberg TV in London in June, disclosed that the country recorded a total foreign exchange inflow of about $24bn in the first quarter of 2024.

While there is no data for subsequent months, the apex bank in August announced that in July, it recorded a significant increase in remittance to $553m, a 130 per cent increase from the same period in 2023.

“This figure represents the highest monthly total inflows on record and reflects ongoing efforts by the CBN to enhance liquidity in Nigeria’s foreign exchange market,” the CBN said in a statement by its Acting Director, Corporate Communications, Hakama Sidi Ali.

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It attributed the substantial growth in remittance receipts to a series of policy reforms implemented by the CBN to enhance liquidity in Nigeria’s foreign exchange market.

Policy reforms

In January 2024, the CBN lifted the previous cap on exchange rates set by International Money Transfer Operators (IMTOs), which had restricted them to a margin of -2.5 per cent to +2.5 per cent around the previous day’s closing rate.

By the end of the same month, the CBN released updated guidelines for IMTOs, significantly raising the application fee for an IMTO licence from N500000 in 2014 to N10 million, marking an increase of approximately 1,900 per cent.

Additionally, a minimum operating capital requirement of $1 million was established for both foreign and local IMTOs. The initial prohibition on IMTOs purchasing foreign exchange from the domestic market was also lifted, allowing them to trade in the official market.

The CBN has been proactive in collaborating with IMTOs to form a Collaborative Task Force aimed at doubling remittance inflows into Nigeria, which reports directly to Governor Yemi Cardoso. Recently, the Bank also granted Approval-in-Principle (AIP) to 14 new IMTOs all to enhance remittances.

A former Chief Economist at Zenith Bank, Marcel Okeke, also echoed the opinion that heightened demand for FX due to travel and school fees had an impact.

“Part of it is the fact that people are going for summer, people are paying school fees amid inadequate supply. The other side of the supply is we are not getting enough Foreign Direct Investment. You can get Foreign Portfolio Investment, and they go out, but when it comes to bringing in real money in dollar terms or hard currency, we don’t see that, which compounds the supply side challenges,” he said.

However, on Friday night, the CBN announced the sale of dollars to Bureau De Change operators after naira suffered bad days at both the official and parallel market, depreciating to about 1,670/$ on Friday.

The circular partly read, “This is to inform the Bureau De Change Operators and the general public that we are providing more liquidity into the market. To this end, the CBN has approved the sale of US$20,000.00 to each eligible BDC at the rate of N1,580/$. This is to meet the demand for invisible transactions.”

Forex slash

Meanwhile, President of Dangote Group, Aliko Dangote is optimistic that President Bola Tinubu’s Naira-for-crude policy will reduce the demand for foreign exchange by 40 percent.

He was speaking at a press conference, where he announced the commencement of the production of petrol at the Lagos-based 650,000 barrels per day Dangote Refinery.

“I want to thank President Bola Tinubu for creating this idea of Naira-for-crude and naira for the product. Doing that will give a lot of stability to the naira and remove 40 percent of the demand for dollars’’, he said.