Fear As Nigeria’s 3-Month Foreign Inflows Decline

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Nigeria’s foreign inflows seem to be terrible inlet as investigations reveal that only N55.33 billion was made so far in three months (Q1) of 2022.

According to analysts who spoke to Leakblast.com, the scarcity of FX  has been blamed  for this development.

According to the Domestic and Foreign Portfolio Investment Report from the Nigerian Exchange Limited (NGX), total foreign transactions has so far been impressive as it recorded N41.31 billion and N45.43 billion in January and February 2022 respectively.

However, it fell by 7.17 per cent to close the month of March at N42.17 billion. Similarly, domestic participation on the NGX rose 239 per cent as against 61 per cent recorded by foreign participationin Q1 2022.

But domestic inflows recorded N300 billion whereas only N55.33 billion has been recorded in foreign inflows in Q1 2022.

Reacting to the development, economic analysts believe that the continued low participation from the foreign investors reflects the impact of FX liquidity constraints and lack of flexibility in the FX framework.

They also warned that this was expected to continue unless the Federal Government and the Central Bank of Nigeria (CBN) evolves new  ways to boost the supply of FX in the country.

Cordros Research in an emailed note, while citing the impact of FX liquidity constraints in the economy, said that the total transaction value at the NGX stood at N692.10 billion in Q1 2022 as against N676.53 billion in Q1 2021.

It noted that in the short to medium term, domestic investors will continue to dominate market performance albeit, buying activities will be constrained by expectations about uptick in Fixed income yields amid uncertainties associated with an election cycle. 

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“Also, FPIs who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to sustained FX liquidity challenges and interest rate hikes by central banks in advanced countries”, it said.

Also speaking, the Chief Executive Officer, Economic Associates, Dr Ayo Teriba, advised the FG and the CBN to seek ways of raising equity so as to reduce the current scarcity of FX in the nation.

He noted that while Nigeria continues to struggle with growth, exchange rate stability, liquidity and inflation, it was important that the Federal Government  prioritises exchange rate over inflation.

Reacting to the CBN’s decision to retain all parameters at the last MPC meeting, Teriba said, “I was not expecting the CBN to claim to do anything about inflation as the cost-push inflation would die off after sometime. If it was demand-pull inflation, one will be talking about the CBN raising rates to reduce inflation. However, you cannot raise rates when growth remains weak nor can you cut rates when you have demand pressures in the FX market.

What the CBN needs to consider is not to confine itself with several meetings to explain why it cannot act but to take strategic steps to boost supply of FX in the country”.

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