Investors Trade Foreign Exchange Worth N24.93trn in 5 Months on Growing Demand

Nume Ekeghe

Following growing demand investors have in five months to May 31, 2022, traded Foreign Exchange (FX) worth N24.93 trillion as against N21.36 trillion traded in the same period of 2021 via the Investors & Exporters (I& E) window, indicating an increase of N3.57 trillion or 16.71 per cent.

This is according to the FMDQ Exchange Fixed Income and Currencies (FIC) monthly report, made available to newsmen in Lagos.

The FMDQ markets comprised of FX, Treasury Bills, Open Market Operation (OMO), CBN Special Bills, FGN & Other Bonds and money market.

The Central Bank of Nigeria (CBN) had in 2017 introduced the I&E window to further deepen the FX market and accommodate all obligations in the country.

The CBN had stressed that its purpose was to boost liquidity in the market and ensure timely execution and settlement for eligible transactions.

However, in 2021, the apex bank adopted the I&E as the official rate, stating that it would help boost investor confidence which has been lacking for some time.

According to the report, the average turnover trade by investors and exporters in the period under review is N4.99trillion as against N4.72 trillion in the prior year. 

The turnover of FX trade at its highest and lowest amounts was N7.29trillion and N4.06trillion in April and February 2022, respectively.

Comparing the highest and lowest amount of FX turnover traded in 2021, the FMDQ report had disclosed N5.11 trillion in April 2021 and N5.07trillion in March 2021, respectively. 

Meanwhile, the increasing total foreign exchange turnover at the FMDQ impacted on the Naira as it depreciated mostly in May 2022.

The report disclosed that Naira depreciated against the US Dollar, losing 0.38 per cent or N1 60 to close at an average of US Dollar/N419.15 in May 2022 from US Dollar/N417.55 recorded in April 2022.

The report noted that, “Further, exchange rate volatility increased in May 2022 compared to April 2022 as the Naira traded within an exchange rate range of US Dollar/N417.00-421.50 in May 2022 compared to US Dollar/N416.50-419.50 recorded in April 2022.”

The report further disclosed that turnover in FMDQ Markets increased by 1.98 per cent or N1.15 trillion to N78.25 trillion in five months of 2022 from N76.74 trillion in five months of 2021.   

According to the report for May 2022, the turnover in FMDQ markets for the month ended May 2022 was N15 39 trillion, representing a MoM decrease of 20.42 per cent or N3.95 trillion and YoY increase of 50.29 per cent or N5.15 trillion, respectively

The report stated that, OMO, CBN Special Bills and Foreign Exchange (transactions were the highest contributors to the FMDQ markets turnover in May 2022 jointly accounting for 63.03 per cent of the total FMDQ markets turnover.

For the spot market, the report disclosed that a total market turnover for all products traded in the spot market was 13.48 trillion in May 2022 representing a MoM decrease of 15.01 per cent or N2.38 trillion from the turnover recorded in April 2022

The FIC report for May said, 
“The M-o-M decrease in total spot market turnover was driven by the 27.66 or N1.05 trillion and 30.39per cent or N1.55 trillion decrease in FX market and money market turnover, respectively, which offset the 3.17 per cent or N0.22 trillion increase in fixed income market turnover in May 2022

“The M-o-M increase in FI market turnover was driven by the M-o-M increase in CBN Special Bills and T bills turnover by 134.97 or N1.65 trillion and 1.70 or N0.02 trillion, respectively. 

“Although, the turnover for OMO bills, FGN Bonds and Other Bonds decreased M-o-M by 37.34 per cent or N1.29 trillion, 12.74per cent or N0.15 trillion and 36.75 per cent or N0.01 trillion), respectively.”

Analysts have expressed that increasing business activities has played a critical role in the FX demand, stressing on the CBN sustained interventions that have reduced investors and foreign pressure.

Analyst at PAC Holdings, Mr. Wole Adeyeye attributed the growth recorded in the total foreign exchange turnover in the first two months to increasing business activities.

He said that the slow growth in business activities in the first five months of 2021 affected foreign exchange turnover traded, attributing it to uncertainty in the global economy. 

He said: “The restrictions had affected investors and exporters’ demand for FX in the first five months of 2022. The war between Russia/Ukraine affected capital inflow into the country and led to volatility in the foreign exchange market. 

“However, with the ease of movement in 2022, investors and exporters surge for FX from the FMDQ market increased and it reflected in the amounts.”

Analysts at Guaranty Trust Holding Company in a report titled, “Nigeria macro-economic: outlook for 2022,” explained that, “In the light of the gradual improvement in vaccination rates, a better understanding and management of the pandemic, strong oil prices and positive GDP growth albeit on the back of a lower base, the business environment made an impressive recovery from the weak pandemic-induced performance of 2020.” 

The Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, also attributed the growth to increasing demand for FX, maintaining that global economy was expected to have expanded in 2022 but might be slowed down due to the crisis between Ukraine and Russia.

According Omordion, “The Nigeria economy has witnessed more business activities in the first five months of 2022 and demand for FX has increased significantly.”