Tag: forex

• Reserves build up to $39.77b

Total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) have risen by 40.2 per cent to a five-month high of $3.04 billion as foreign investors stepped up demand for Nigerian assets.

The latest report on NAFEM obtained yesterday showed that the positive overall performance of inflows was driven mainly by increases in foreign portfolio and direct investments.

Nigeria’s foreign exchange (forex) reserves also at the weekend rose for the ninth consecutive week to $39.77 billion, an increase of $326.64 million during the week.

Data, obtained from the FMDQ Securities Exchange, indicated that total inflows into NAFEM rose from $2.17 billion in September 2024 to $3.04 billion in October 2024, an increase of 40 per cent and its highest figure in five months.

The increase was driven broadly by stronger inflows from foreign sources, compared to declines in domestic sources.

Inflows from foreign sources rose by 292.7 per cent from $345.50 million in September 2024 to $1.37 billion in October 2024, representing 44.6 per cent of total inflows during the period and the highest level in seven months.

Inflows from foreign portfolio investors (FPIs) had grown by 510.9 per cent, underlining the increasing participation of foreign investors in the Nigerian market. Inflows from foreign direct investments (FDIs) were also considerably high, rising by 44.6 per cent during the period.

However, collections from local sources, which accounted for (55.4 per cent of total inflows, dropped for the second consecutive month, from $1.82 billion in September to $1.69 billion in October, a drop of 7.5 per cent.

A breakdown showed declines across most segments of local collections. Collections from individuals dropped by 30.6 per cent, from CBN by 14.3 per cent while collections from non-bank corporates dipped by 8.6 per cent. Inflows from other corporate segment had also dropped by 15.1 per cent. Meanwhile, collections from exporters and importers inched up by 0.6 per cent.

With its ninth consecutive increase at the weekend, Nigeria’s forex reserves have risen by $6.858 billion so far this year and currently standing at its highest level in more than a year. The nation’s forex reserves had ended 2023 at $32.912 billion.

Market sources said the continuing accretion was due to improved investors’ confidence in the Nigerian market.

The increase at the weekend was due partly to purchases from foreign portfolio investors, who are currently trading at their highest turnover in five years.

The Nation reported that more than a double in foreign transactions and sustained upbeat by domestic investors pushed total transactions at the Nigerian stock market to its highest level by the third quarter 2024.

Official trading report showed that total transactions at the stock market rose to N3.97 trillion in the first nine months of this year, the highest third quarter turnover according to available official records of the market.

The 2024 performance represented a new record against the market’s turnover in third quarter 2023, when the market had set a high of N2.71 trillion. The closest records were in 2018 and 2014 when the market recorded N2.01 trillion and N2.04 trillion respectively.

The latest report also showed almost a double in the participation of FPIs in the Nigerian market, a situation that analysts attributed to the attractiveness of the Nigerian stocks and the relative liquidity occasioned by foreign exchange (forex) reforms.

The proportion of participation by FPIs increased from 9.51 per cent in third quarter 2023 to 17.56 per cent in third quarter 2024, the highest in the past three years.

Total foreign transactions at the Nigerian Exchange (NGX) grew by 170.1 per cent from N258.02 billion in third quarter 2023 to N696.88 billion in third quarter 2024, the highest in six years.

While forex differential contributed to FPIs turnover, domestic investors have also shown sustained strong appetite for quoted equities with a turnover of N3.27 trillion in third quarter 2024, higher than total transactions in previous years of the market. Total domestic transactions had stood at N2.45 trillion in third quarter 2023.

However, the increasing participation of foreign investors has reduced the proportion of domestic investors participation from 90.49 per cent in third quarter 2023 to 82.44 per cent in third quarter 2024.

Experts attributed the upbeat at the stock market to the increasing attractiveness of the Nigerian market to foreign investors, ongoing economic reforms, resilient earnings by Nigerian companies, exchange rate differential, ongoing banking recapitalisation and the reform in the oil sector.

Managing Director, AIICO Capital, Dr Femi Ademola, said Nigerian equities have become very attractive to both foreign and domestic investors.

“The equities market has become very attractive, mostly due to the devaluation of the currency which make the shares very cheap, especially to foreign investors. The very strong half-year performance reported by corporates especially banks and the corporate actions that followed the announcements have also driven many investors to the equities market. Finally, the lack of volatilities in the bond market makes it unattractive to investors, thus they flock to the equities market,” Ademola, a Chartered Financial Analyst (CFA), said.

Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the ongoing banking recapitalisation and the reforms in the oil sector have driven more investors to the market.

Read Also: CBN, FMDA okay new forex plan to reduce speculations

“We’ve seen increasing return of foreign portfolio investors, I understand the turnover by FPIs has grown significantly in the last few months. This can be attributed to the weaker naira that makes Nigerian stocks a bargain for FPIs. Secondly, new listings such as Aradel also boosted investors’ appetite for stocks.

This can also be seen in the light of the approval of the Exxon Mobil’s acquisition by Seplat by the Federal Government. Thirdly, the banking recapitalisation exercise along with impressive second quarter reports have continued to attract investments towards that sector,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS), said.

Experts have said the steady build-up in foreign reserves would support naira’s stability in the meantime, providing a breather as government implements fiscal measures to boost the country’s crude oil and diversify the economy.

Ademola said increase in foreign inflows and participation implies that foreign portfolio managers are now more optimistic about the country’s economic prospects and are increasingly looking for opportunities to invest in Nigeria.

He said such stance could send a more reassuring signal to the markets and help to moderate the country’s foreign exchange (forex) position.

Amolegbe said the continuing increase in forex reserves will support government’s current efforts aimed at fostering liquidity and stability at the forex market.

“The increase is a positive signal for improved liquidity in the forex market. This should ultimately help to stabilize the exchange rate of the naira or even strengthen it against the dollar if the increase is steady and consistent,” Amolegbe said.

• Naira appreciates

The Nigeria’s FX reserves recorded accretion, as the gross reserves level increased by $337.89 million week/week to $36.9 billion as at  September 12.

This represents 1.5 per cent or $528.6 million inflows, week-on-week to $36.9 billion

Data from the Central Bank of Nigeria (CBN) portal, showed that the reserves stood  at $36.244 billion on September 2 and $36.274 billion on September 3 and $36.7 billion on September 10, indicating steady surge.

Report from Cordros Securities, says the reserves boost possibly reflects inflows from the proceeds $900 million proceeds from the domestic FGN US Dollar bond recently concluded.

Afrinvest weekly report said  Brent crude oil price rose three per cent week-on-week  w/w to $73.20/bbl. The domestic bond market witnessed robust activity this week, highlighted by the successful launch of the government’s inaugural dollar-denominated bond. The five-year bond, issued by the Debt Management Office (DMO) to raise $500 million was met with strong demand, oversubscribed by $400 million.

Analysts said the dollar bond is expected to provide a much-needed boost to foreign exchange inflows and help address short-term supply-demand imbalances in the market.

Earlier last week, Brent crude oil price dipped to a 52-week low of $68.52/bbl. owing to cooling global demand, particularly due to economic struggles in China, and hurricane Francine which caused significant disruptions in the US Gulf of Mexico resulting in evacuation of production platforms.

Meanwhile, OPEC+ postponed plans to increase production provided support to prices.

The report said that following the Central Bank of Nigeria’s intervention of $121.00 million last week, the naira appreciated by three per cent week/week (w/w) to N1,546.41 to dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Read Also: ‘Nigeria needs strategic fiscal policies to boost forex’

However,  undermining the CBN’s intervention of  $121.00 million during the week, the total turnover at the NAFEM dropped  by 15.7 per cent week-to-date to $980.92 million, with trades consummated within the N1,499.00/$ to N1,668.00/$ band.

In the forwards market, the naira rate decreased across the 1-month (-0.5 per cent to N1,668.65/$) and 3-month (-0.2 per cent to N1,738.23/$) contracts, but increased across the 6-month (+0.2 per cent to N1,838.87/$) and 1-year (+1.1% to N2,052.05/$) contracts

 “The naira is likely to remain under pressure despite recent efforts by the CBN to stabilise the currency. We expect market demand may continue to outweigh supply given the CBN’s mild intervention and weak Foreign Portfolio Investment (FPI) inflows,” the report said.

Nigeria needs strategic fiscal policies to enhance foreign exchange (forex) inflows and ensure stable economic growth.

A report by Afrinvest West Africa at the weekend noted that Nigeria has been unable to meet estimated $23.2 billion annual forex demand by businesses in seven of the last eight years since 2015 due to collapse of inflows from crude oil exports.

The report outlined that the government needs to further implement strategic initiatives in order to boost economic productivity, including increasing oil production, enhancing remittances through official channels, optimising non-oil export size, and attracting long-term foreign direct investment.

Afrinvest Weest Africa, in its monthly report at the weekend, also stated that the naira might come under pressure this month as more travelers are expected to seek Personal Travel Allowance (PTA) and Business Travel Allowances (BTAs) for their foreign trips within the month.

Analysts said massive demand for PTAs and BTAs by travelers will likely weaken the naira, unless there are significant dollar inflows to boost forex  positions in the economy.

The report said the month of September comes with “seasonality effects” for PTAs, BTAs demand.

Traveling abroad, whether for business or leisure, often requires access to foreign currency. In Nigeria, the Central Bank of Nigeria (CBN) has provisions for travelers to obtain forex under the BTA and PTA schemes.

Based on CBN’s guidelines, travelers can access $4,000 PTA per quarter and $5,000 BTA per quarter based on them meeting documentation requirements and availability of funds.

These allowances enable travelers to access the necessary funds for their trips without the hassle and high costs associated with unofficial exchange rates.

Expanding on the development, the report said: “In the absence of 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.”

It said that Nigeria’s foreign exchange reserves fell 1.3 per cent month-on-month  to close at $36.3 billion and the slight decline can be attributed to the Central Bank of Nigeria (CBN’s) intervention in the FX market in an effort to stabilise the Naira.

“Meanwhile, activity level faltered as total turnover fell 29.7 per cent month-on-month to $3.6 billion. In the currency market, the performance of the naira varied. Specifically, the Naira gained 0.9 per cent month-on-month  against the dollar to N1,593.9/ $1.00 at the official market window while it dipped 0.6 per cent  month-on-month at the parallel market to close at N1,605.00/$1,” it said.

On the oil sector performance, the report said that in August, Brent crude oil prices experienced a rebound, driven in part by the planned production cuts in Iraq (down to 3.85mbpd from 4.25mbpd) as part of plans to compensate for excess output in July and production shutdown in Libya due to political dispute.

“These disruptions to supply triggered a bullish outlook for oil prices, as market participants anticipate shortages,” it said.

“Additionally, the expectation of interest rate cuts by the Federal Reserve in September contributed to the rise in crude oil prices as lower interest rates can weaken the US dollar relative to other currencies, which will make crude oil more attractive to foreign buyers. As a result of these factors, the average Brent crude oil price rose 3.6 per cent month-on-month  to $84.3/bbl”.

Read Also: Soursop capable of generating forex for Nigeria

The report also took a deeper look into the recently published second quarter 2024 Gross Domestic Product (GDP) data, which showed that the economy grew 3.2 per cent year-on-year in real terms compared to 2.5 per cent in second quarter of 2023.

Furthermore, it highlighted three striking patterns in the sectoral GDP performance that call for improved strategy from the Federal Government and other sub-nationals to avert major economic crises.

“First, the resilience of the services sector is fast weakening, given that growth only came in at 3.8 per cent as compared to 4.4 per cent in the corresponding period of 2023. We are concerned that this worrisome trend may not be unconnected to the heightened pressure exerted on players in the sector, notably, the telecoms sector evidenced by the negative knock-on effect of exchange rate volatility in the last 12 to 14 months on the sector (sector’s average growth weakend to 4.4 per cent from a 10-year average of 9.5 per cent).”

Also, MTN Nigeria’s shareholders fund was wiped off in 2023 after posting record exchange rate losses of N740 billion.

The report said, the agriculture sector growth at 1.4 per cent is unflattering, considering the 2023 base where growth printed at 1.5 per cent despite disruptions from the naira scarcity episode and pre-election jitters.

In addition, the agriculture sector growth is weak for an economy with an estimated population growth rate of 2.5 per cent per annum.

The Central Bank of Nigeria (CBN) has however, initiated key policies meant to reduce to volume of forex demand. The apex bank recently authorised dealers to pay personal and business travel allowances to their customers through debit or credit cards instead of cash is expected to reduce round-tripping, wastages and boost dollar liquidity.

There was also a directive for international money transfer operators   to maintain a minimum operating capital requirement of $1 million and to operate in the formal market instead of the informal market.

This was to foster confidence in the market and close the gap between the official and the black forex market.

Banks have also informed their customers that effective immediately, Personal Travel Allowances (PTA), Business Travel Allowances (BTA), and other foreign exchange purchases would only be disbursed via a dollar travel card.

Also, the CBN-led Monetary Policy Committee has consistently raised the Monetary Policy Rate (MPR) why modifying other key rates. The benchmark interest rate was raise by 600 basis points to 26.75 per cent, action meant to ease inflation, boost foreign capital inflows and gradually correcting exchange rate misalignment.

There was also a government directive to the Nigerian National Petroleum Corporation (NNPC) and other Ministries, Departments, and Agencies (MDAs) to remit dollar revenues to the CBN to boost reserves and strengthen the naira.

On that, CBN Governor, Olayemi Cardoso remarked that the decision was a positive step aimed at enhancing investor confidence in the economy.

President, Bank Customers Association of Nigeria, Uju Ogubunka described the decision of the NNPC to remit dollar receipts directly into the CBN account as step in the right direction.

He said aside having the funds to add to the dollar liquidity in the economy, it raises confidence of foreign portfolio investors and foreign direct investors on the economy. Ogubunka said the NNPC has the right to withdraw the funds at will but during the period of deposits, there will be liquidity boost.

Ogubunka said: “The NNPC fund will also provide some measure of control for the CBN and put the economy in better standing.” On the $2.4 billion forex backlog fraud, he said the apex bank should go beyond the disclosures, and seek prosecution of the companies and individuals involved. “I think the companies that were involved in the forex backlog fraud should be named, and prosecuted. That will serve as deterrent for others”.

president, association of bureaux de change operators, Aminu Gwadabe, said the remittance of NNPC’s inflows directly to the CBN account will show transparency and accountability of the institutions.

He said: “The CBN has taken major steps to see that dollar liquidity in the economy improves, and that will invariably, help in stabilising the naira. With improved liquidity, foreign investors will have more confidence in repatriating their dividends from the country”.

In July 2024, Nigeria’s money supply (M3) hit a record N106.27 trillion, marking a 62.66 per cent increase from July 2023, despite the Central Bank of Nigeria’s (CBN) tightening measures. The CBN has countered inflationary pressures with tools like Open Market Operations (OMO), treasury bills, and raising the Monetary Policy Rate (MPR) by 50 basis points to 26.75 per cent in July 2024.

Additionally, the CBN plans to issue N2.20 trillion in treasury bills in fourth quarter of 2024. Currency in circulation (CIC) grew 56.18 per cent year-on-year to N4.053 trillion, reflecting increased economic activity and government spending.

However, currency outside banks (COBs) fell 3.43 per cent month-on-month to N3.66 trillion but surged 65.61 per cent year-on-year.

The government needs to tighten implementation of key fiscal measures to boost inflow of foreign exchange (forex) to ensure the success of the newly-revived Retail Dutch Auction System (RDAS) by the Central Bank of Nigeria (CBN).

In a report at the weekend, analysts at Afrinvest West Africa said there is a need for an increase in oil production, remittances and greater inflow of foreign direct investments (FDI) to sustain such retail forex sales.

The RDAS forex market policy was revived last week by the CBN. It took off with $1.2 billion bids from 32 authorised dealer banks.

Transaction activity report at the auction showed that out of the transactions, bids amounting to $876.3 million from 26 banks qualified at an approved cut-off rate of N1,495.0/$ while bids valued at $313.7 million from six banks were disqualified.

Analysts from Afrinvest West Africa disclosed that in the days following the auction, the Naira appreciated 1.7 per cent at the NAFEM window to end last week at N1,574.2/$.

 “While we applaud the CBN’s efforts to stabilise the FX market, several challenges remain that questions the long-term sustainability of this approach and other stop-gap measures recently introduced by the CBN,” the analysts said.

The report titled: “Domestic Macroeconomy: RDAS Reintroduction, CPI Expectation… Will Price Pressure Streak be Broken Yet?”, said the CBN reintroduced the RDAS policy to enhance FX liquidity, address ongoing demand pressures and support price discovery.

It disclosed that the CBN reintroduced the RDAS which was previously suspended in 2015. “For context, the RDAS is a direct sale of FX by the Central Bank through the banks to the end users. The price at which the FX is being sold is usually determined by the highest accepted bid in the auction. Central Banks employ this to control FX liquidity and stabilize the exchange rate market by allowing market forces to influence currency allocation,” it said.

Read Also: Governors, lawmakers, others to discuss purposeful leadership at APC group’s symposium

The auction pricing, the report said,  closely reflects existing reality in the wholesales FX market – the NAFEM rate have swung between N1,450.0/$ and N1,600.0/$ in most of 2024. This highlights the fact that the FG’s goal of bringing the NGN/USD rate to ₦N00.0/$ by year-end is unlikely. As such, we hold to our view that for the naira to regain lasting strength, there is a need for the implementation of strategic fiscal policies to boost economic productivity.

 “Without an increase in oil production (to at least 1.80mbpd), higher remittances flow through official channels (to at least $20.0bn per annum), and improved inflows of patient longer term capital (FDI of at least $10.0bn per annum), the naira would remain in the shadow of the FG’s dream target,” Afrinvest stated.

 “Meanwhile, the IMF in it’s 2024 article IV consultation note estimate Nigeria’s monthly import bill at $6.0bn, implying that the reserves could only cover 6 months imports. Regardless of the estimate considered, the FX reserves could run dry in 6 to 9 months should the magnitude of the bids at the auction ($1.2bn) be met weekly and accretion rate does not offset outflows”.

 “In addition, seasonality trends suggests that FX demand for manufacturing imports, educational commitments and summer travels peaks in Q3. Hence, we are of the view that the measure will only temper the demand pressure that is building up,” it said.

In its BIZNOMICS report, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the misalignment of the naira has been a persistent concern for an extended period, and policymakers face the challenge of establishing its fair value compared to the market value.

 “One way of doing this is through an efficient price discovery mechanism, with options ranging from a retail Dutch auction, wholesale auction, and interbank system to allocation and rationing. The key aim is to ensure that those who need foreign exchange can obtain it at an effective price, which the retail Dutch auction system (RDAS) would enable due to its transparent approach,” he said.

According to him,  the RDAS is expected to be a solution for efficient price discovery to reduce the misalignment of the naira from its fair value.

“This would help stabilize the naira, easing the cost-of-living crisis driven by the naira’s rapid depreciation and surging inflation. The cost-of-living crisis catalyzed the ongoing 10 days of protest in Nigeria, which began on August 1. While the intensity of the protest has subsided, over 30 lives have been lost, with an estimated N800 billion worth of properties destroyed, in addition to an output loss exceeding N1.3 trillion,” he said