Nigeria’s dollar inflow fell to a five-year low of $16.93 billion in the third quarter of 2022, a decrease of 13.2% from the $19.5 billion received in the previous quarter and a drop of 43.9% from the $30.18 billion recorded in the same period of 2021.
The Central Bank of Nigeria (CBN) said that between January and September 2022, Nigeria attracted $54.81 billion, which is 25.7% less than the $73.74 billion it received during the same time period in 2021.
Flows of Forex: Highlights
The data shows that the CBN provided the Nigerian economy with $7.28 billion in Q3 2022, accounting for 43% of all inflows during the study period, while autonomous sources provided $9.66 billion.
Nonetheless, withdrawals fell from $11.03 billion in the previous quarter to $9.93 billion in Q3 2022. According to CBN figures, outflows through the CBN were $8.54 billion, while autonomous sources accounted for $1.39 billion.
As a result, net FX flow through the Nigerian economy was $7 billion in Q3 2022, down from $8.47 billion the year before and $19.96 billion in the same quarter last year.
Reduced earnings from crude oil export, primarily because of oil theft, and decreased production capacity, among other factors, may be to blame for the drop in Nigeria’s foreign exchange inflow. Regarding the interest-to-inflation rate ratio and its effects on investors’ real returns, the economy has also recently failed to entice foreign investors.
After the covid-19 pandemic in 2020, the Nigerian economy has experienced a substantial Currency squeeze. A quick scan of the data from Nairalytics, the research arm of Nairametrics, reveals that Nigeria’s FX inflows in Q3 2022 were at a five-year low, the lowest since Q1 2017.
In a similar vein, since the pandemic, capital importation in the form of direct, portfolio investments, and loans has also seen a sharp decline. According to a recent survey, between January and November 2022, capital inflows decreased by 12.3% year over year to $4.89 billion.
Although this is going on, the CBN has kept the rate of the naira in the official Investors and Exporters (I&E) window fairly steady at an average of N461/$1, at the expense of the foreign reserves, which have fallen by more than $3.71 billion in the past 14 months (From December 2021 to date).
Meanwhile, the lack of FX supply has led to systematically depreciating prices in the official market. The average exchange rate in the I&E window was over N416 to $1 in 2021. From there, it declined to over N434 to $1 in 2022 and finally settled at N461 to $1 in 2023.
Naira at risk of further devaluations:
The constrained FX supply in the economy puts the exchange rate at increased risk of depreciation in the future. For instance, the CBN’s availability of foreign exchange in the official market has drastically decreased recently.
Its lowest supply since Q3 2020, the CBN’s currency supply to the I&E, SME, and Invisibles dropped to $3.62 billion in Q3 2022 from $4.02 billion in the same time the year before.
However, keep in mind that in 2021, the central bank ceased selling foreign exchange to Bureau De Change businesses in the nation. As a result, the rate on the black market rose from an average of N565 to $1 to as much as N800 before stabilizing at N755 to $1. The official market’s Currency squeeze is likely to move to the underground market, driving increasing demand despite underlying supply limits.
