The demand for foreign exchange by individuals and companies seeking to do importation and other forex-related activities fell 42 per cent year-on-year, latest data from the Central Bank of Nigeria have shown.
An analysis of the total sectoral utilisation of foreign exchange revealed that 19 sectors and services received $21.12bn forex allocation in 2023.
The figure was however a reduction of 41.9 per cent or $8.87bn from the $29.98bn disbursed to the industry players in 2022.
The financial metrics were contained in the quarterly statistics report of by the CBN.
Forex allocation refers to the process through which the CBN distributes foreign exchange to various sectors of the economy, including individuals, businesses, and government agencies, based on certain criteria and priorities.
In June 2023, the CBN adopted a floating exchange rate system for the naira, unifying all forex market segments, consequently leading to a notable depreciation of the domestic currency against the United States dollar and other global currencies.
It said, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market: Abolishment of segmentation; all segments are now collapsed into the Investors and Exporters window.”
This led to an immediate decline in the value of the naira. The local currency fell from 471/$ to about 1,485/$ on at the Investors and Exporters FX window.
As the exchange rate continued its volatility, the naira worsened at the parallel market, hitting 1,500/$ last week.
The reduced gap between the official and parallel markets has compelled importers to decrease their forex demand for goods or raw materials, affecting manufacturers, healthcare, education, and travel expenses.
Financial experts also suggested that the scenario might indicate insufficient forex liquidity from the central bank, leading dollar buyers to turn to the parallel market.
A breakdown of the document showed that the CBN disbursed $14.27bn dollars to seven sectors for the import of raw materials and spare parts and $6.84bn dollars for invisible services in 2023.
This represents a decrease of $8.87bn from a combined release of $18.2bn for imports and $11.76bn for invisible services allocated in 2022.
These sectors include the industrial sector, transport sector, agricultural sector, oil sector.
Others are for the import of food products, manufactured products and minerals.
In the invisible category, the bank released foreign exchange for business services, communication, construction and related engineering, distribution, educational, environmental, financial, health-related and social services, tourism and travel-related services, recreational, cultural and sporting, transport and other services.
A monthly breakdown showed that $2.62bn was released in January 2023, $1.94bn in February, $2.96bn in March, $1.78bn in April, $2.36bn in May, $2.11bn in June, $1.02bn in July and $1.15bn in August, $1.13bn in September, $1.1bn in October, $1.61bn in November, $1.34bn in December.
However, within the same period in 2022, Saturday PUNCH observed improved liquidity with $2.13bn released in January 2022, $2.02bn in February, $2.7bn in March, $2.64bn in April, $2.41bn in May, $3.24bn in June, $2.45bn in July and $2.64bn in August, $2.17bn in September, $2.17bn in October, $2.43bn in November, $2.96bn in December.
Meanwhile, the Governor of the Central Bank of Nigeria, Dr Olayemi Cardoso, has disclosed that the foreign exchange inflows recorded in the first quarter of 2024 into Nigeria were about 136 per cent of the total inflows recorded in 2023.
The CBN governor at the Vanguard Economic Discourse stated that the regulator would continue to be focused on increasing the flows of diaspora remittances into the economy via official channels to improve liquidity in the FX market.
The apex bank governor, represented by the Director of Risk, CBN, Blaise Ijebor, said, “We remain committed to using all the orthodox monetary policy tools available to us to address inflation. We have also embarked on major reforms to liberalise the foreign exchange market, which has enhanced transparency, reduced arbitrage opportunities, promoted stability and improved the liquidity in the market.
“The settlement of all valid FX forwards, which was one of my commitments when I came on as governor of the Central Bank of Nigeria, has also improved the confidence of stakeholders. We are already seeing the result of these reforms in the growth of FX flows into the country. The FX flows into the country in Q1 of 2024 was 136 per cent of the total inflows that we had in the whole of 2023.”
Although enhanced liquidity recently facilitated the resolution of all FX backlogs, the stabilization of the Naira at the exchange market remains an ongoing process that has yet to reach full fruition.
In an interview, the Group Managing Director of Cowry Asset Management Company, Johnson Chukwu, said the Federal Government needed to urgently increase crude oil production to bring in dollars and ease the pressure on the local currency.
“The country’s borrowing capacity is being constrained now. If Nigeria had more borrowing capacity, I would have said we should go to the Eurobond market and raise $10bn with some years of moratorium and maybe 10 years of maturity. We could have used it to clear the rears of unmet demand.
“But as it stands today, that window is narrow because we do not have the headroom for significant borrowing from the Eurobond market. I think the short route for now within our country is to improve on crude production. That is the surest way to stabilise the naira,” he enunciated.
The Head of Strategy at the Lagos Business School, Prof Olawale Ajai, also noted that though there was no magic bullet to fixing the country’s forex challenges, ramping up oil production would help stabilise the local currency.
“The government is trying to raise forex through various means to meet existing obligations. But the level of speculation is still very high. People are hedging with forex. It is a confidence thing. That is a very fragile thing to do.”
SOURCE: PUNCHNG
