FX Turnover On FMDQ Drops By 28.4% On Reduced CBN Interventions, Foreign Portfolio Investment

Following reduced interventions by the Central Bank of Nigeria (CBN) and a decline in foreign portfolio investment (FPI) net flows, total Foreign Exchange (FX) turnover on FMDQ OTC Securities Exchange declined by 28.4 percent in the first eight months of 2021, data gathered by THISDAY revealed.

Analysis of activity at the exchange showed that total FX turnover on FMDQ between January and August of this year stood at N34.42 trillion as against N48.1trillion recorded in the prior period under review.

The breakdown revealed that a total FX turnover of N3.26trillion was traded at the I& E FX window, it increased to N4.29trillion in February.

According to FMDQ’s monthly report, total FX market turnover in March 2021 was N5.07trillion or $12.35billion, representing a Month-on-Month (MoM) increase of 16.51 percent (N4.29 trillion) from the turnover recorded in the previous month.

For April, the data revealed that total FX market turnover was N5.11 trillion or $12.44billion, representing an MoM increase of 0.73 percent from turnover recorded in March 2021.

FMDQ in its monthly report stated, “Total FX market turnover in May 2021 was N3.63trillion or $7.31billion, representing an MoM decrease of 41.24 percent ($5.13billion) from the turnover recorded in April 2021 ($12.44billion). Total FX market turnover in June 2021 was N4.16trillion or $10.12billion, representing an MoM increase of 38.44 percent ($2.81billion) from the turnover recorded in May 2021 ($7.31billion).

“Total FX market turnover in July 2021 was N5.14trillion or $12.50billion, representing an MoM increase of 23.52 percent ($2.38billion) from the turnover recorded in June 2021 ($10.12billion).

Total FX market turnover in August 2021 was N3.76trillion or $9.13billion, representing MoM decrease of 26.96 percent ($3.37billion) from the turnover recorded in July 2021).”

Besides, the monthly report by FMDQ revealed that turnover in the Fixed Income and Currencies (FIC) in the eight months under review also dropped by about 18 percent to N123.28trillion compared to N150.25trillion in eight months of 2020.

The FIC comprises foreign exchange, Treasury bills, OMO bills, CBN special bills, the federal government of Nigeria bonds,, other bonds and the money market.

With the CBN adjustment in the foreign exchange market, the Naira at the Investors & Exporters Foreign exchange window (I & EFX) window has depreciated by an average of 4.43 percent or N17.46 against the dollar in the eight months under review.

Analysts attributed the decline to low FX supply to the specialized investors and exports window and weak intervention by the apex bank, stressing that the FPI inflow also contributed.

According to the Chief Economist/Head, Investment Research, PanAfrican Capital Holdings, Moses Ojo, the decline in FX market turnover between January and August of 2021 was a result of scarcity of foreign exchange.

According to him: “CBN over the time keeps telling stakeholders of a lot of backlogs of foreign investors who wanted to move out their funds and they couldn’t meet their demands due to scarcity. I think it is scarcity that makes it appear there were lower activities in the FMDQ foreign exchange market and FIC in the first eight months of 2021. It is the backlog that makes it appear there were low activities in the foreign exchange turnover of the FMDQ Exchange.”

In a recent presentation, Chairman of the Economic Advisory Council (EAC), Dr. Doyin Salami noted that the total foreign investment inflow into Nigeria remains low.

According to him, “Investment inflows were $875million in 2021 Q2 – the lowest quarterly inflow since 2016 Q1. FDI inflow into Nigeria has revived around $1billion in the last five years. FDI inflow in 2021Q2 was $78million, even lower than 2020Q2.”

He highlighted that macroeconomic instability, policy inconsistency; inadequate infrastructure insecurity, and tough business climate are the key hurdles Nigeria’s investment climate is facing.

Meanwhile, THISDAY findings revealed that naira close at an average of $/N411.49 in August 2021 from an average of $/N394.03 in January 2021.

According to FMDQ monthly report: “Naira appreciated against the Dollar at the I&E FX Window, trading within a range of $/N350.27 and $/N415.95 in January 2021, and gaining 0.23 percent ($/N0.90) to close at an average of $/N394.03 in January 2021. The Naira depreciated against the dollar, losing 0.03 percent ($/N0.11) to close at an average of $/n411.49 IN August from $/N411/38 recorded in July 2021.”

The Governor of the CBN, Godwin Emefiele had in February this year announced that naira has depreciated at the official market to N410 against the dollar.

Emefiele said the drop in crude oil earnings and the associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria.

He said, “In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$.’’

The apex bank in its economic report in April had explained that: “Despite the rebound in economic activities, the fragile recovery will keep the economy operating below full capacity. The emerging food supply shocks associated with the drag in production, due to insecurity situations across the country, combined with the speculations on an increase in the price of PMS and electricity tariff, will continue to have knock-on pressures that will keep headline inflation above desired levels. “Inflation rate is nonetheless expected to continue to decelerate in the short-term. The outlook for the external sector remains stable, albeit susceptible to further external shocks. This is premised on the expectation of sustained improvement in crude oil prices. The ongoing policy on diaspora remittances is expected to attract foreign exchange inflow.

“Despite the optimism, downside risks to the outlook remains. Concerns over the emerging third wave of the COVID-19 in Europe and Asia could disrupt the global supply chain and crude oil demand. In addition, vulnerability to foreign exchange pressure, rising inflation, insecurity across the country, infrastructure gap, and constrained fiscal space, remain a challenge.”

– Thisday