After taking the daring step of unifying the Naira, the Central Bank of Nigeria (CBN) has reported a composite foreign exchange (FX) influx of $2.55 billion in two months.
This increased inflow was predominant in the Investors and Exporters (I&E) window, marking $1.41 billion in June, up from $1.14 billion in May, with a significant portion of the June influx coming from domestic businesses and exporters.
The Naira unification policy has led to noteworthy advancements in the domestic forex market. The policy was announced as an initiative to improve liquidity and stability by consolidating all forex market segments.
The CBN reported that the domestic forex market managed to sustain over 90% of the total inflow in June.
Despite the Naira’s continuing plummet against the dollar, financial experts predict that the exchange rate unification could potentially stimulate enhancements in FX liquidity in the medium to long term.
Some pundits also predict an inflow of investors across various sectors of the economy due to this recent shift.
Kelvin Emmanuel, an economist, puts a positive spin on the situation, stating that the current uptick in foreign inflows shows an appreciation in light of the government’s decision to peg the Naira to fair value.
Emmanuel shares with FORBES AFRICA: “The increase from $468 million to $2.55 billion serve as evidence that aligning official I&E rates with spot rates leads to increased independent government revenues, higher foreign direct investment (FDI)/foreign portfolio investment (FPI) funds, improved diaspora remittances, and enhanced net export proceeds.”
However, he is concerned that “the widening of the black-market premium to 18%, which reflects the apex bank’s hesitance to merge the I&E window with spot rates, indicates that the CBN has not fully embraced a floating exchange rate system”.
Emmanuel’s assessment is that the annual consolidated report of the CBN, showing a decrease in Nigeria’s external reserves to $17 billion in contrast to the $43 billion of external debt, solidifies the reluctance of long-term, non-speculative foreign direct investors and short-term, speculative foreign portfolio investors to invest capital in Nigeria, aligning with the principles of the Guidotti-Greenspan rule for the reserves-to-debt ratio.
Oluwaseun Obilana, an exporter, emphasizes the need for the government to increase their rebate to exporters and improve daily limits on FX transactions.
Obilana expresses to FORBES AFRICA: “The increase in inflow is very promising as it could significantly contribute to the growth of the country’s economy, potentially motivating more exporters to engage in business.”
“But, to achieve this, the government needs to consider raising the rebate provided to exporters and also increasing the daily limit for foreign exchange transactions.”
He highlights the challenges exporters like him face due to strained access to the dollar at the official rate.
“Despite the recorded increase in inflow, exporters still encounter difficulties accessing dollars at the official rate. The inability to access dollars for freight payments is severely impacting our businesses. When attempting to pay for freight, we often encounter the frustrating message ‘daily limit reached.’ Dollars should be made more accessible and promptly available.”