Amid Naira Depreciation, Turnover at I&E FX Window Hits N9.46trn

Kayode Tokede

On the back of the weakening of the naira, turnover trade at the Investors & Exporters Foreign Exchange (I&E FX) market increased to N9.46 trillion in the first two months of 2023, up by 14.25 per cent or N1.18 trillion from N8.28 trillion in prior first two months of 2022, according to a report by FMDQ Exchange Limited.

The breakdown revealed that turnover trade at I & E FX market in January 2023 stood at N4.79 trillion from N4.22 trillion in January 2022, and for February 2023, it gained N0.61 trillion to N4.67 trillion as against N4.06 trillion reported in February 2022.

The I&E FX window was created in 2017 by the Central Bank of Nigeria (CBN) and it is a market trading segment for Investors, Exporters and End-users.

It allows foreign exchange trades to be made at exchange rates determined based on prevailing market circumstances, thus ensuring efficient and effective price discovery in the Nigerian foreign exchange market.

According to the FMDQ report, turnover trade at I & E FX window in 2023 dominated transactions, followed by CBN bills that comprises of Open Market Operations (OMO) and CBN Special Bills

Analysis of the report showed that between January and February 2023, a total of N5.66 trillion traded by the CBN was traded on the FMDQ exchange.

Analysts have expressed that the introduction of RT 200 and Naira-4-Dollar initiatives by CBN have improved transactions on the I & E FX window.

The RT 200 program aims to attain a goal of $200 million in foreign exchange repatriation from non-oil exports over the next 3-5 years.

The scheme rests on five key which are: non-oil export proceed repatriation rebate scheme; non-oil commodities expansion facility; dedicated non-oil export terminal; value-adding exports facility; biannual non-oil export summit.

Under this scheme, non-oil export proceeds sold to authorised dealers and banks (for third-party use through the investors and exporters window) will receive a rebate of N65 and N35 for every USD repatriated and sold into the I&E window for third party use and for own use on eligible transactions only.

Commenting, the Head, Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi said, “RT 200 introduced by CBN has impacted on the turnover trade at I & E FX window. Most commercial banks have been encouraging traders and exporters to utilize the opportunities that comes with the RT 200 initiative.

“There is a lot of demand waiting for foreign exchange and we have seen them manifesting in the I & E FX window this year. Do not forget that between November and December of 2022, there was devaluation of Naira and some people wanted to take advantage.

“In addition, we also have some businesses that are earnings in Dollars but they also have obligations in Naira and they are constraint to actually sell some of their dollars to get Naira. All these have impacted on the I & E FX market in the first two months of 2023.”

Also, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion, stated that the N9.46 trillion turnover trade at the I & E FX window is a reflection of increasing demand for foreign exchange and improvement in the global economy activities.

Omordion expressed that the domestic economy has witnessed more business activities in 2023 despite political uncertainties.

Despite increasing turnover trade at the I & E FX window, the Naira depreciated to N461.54 against the dollar in February 2023 from N416.32 reported in February 2022.

Analysts at Emerging Africa in a report believed that there is a possibility of another devaluation of the Naira   by the CBN in 2023 in order to enable the reflection of current economic realities.

They said, “We expect the trend of failing reserves to be sustained in 2023 on the back of the limited foreign investment inflows and increasing foreign exchange demand barring any major structural reforms in the Nigerian foreign exchange market.  However, the possible removal of fuel subsidiary will improve the growth of the reserves and provide the CBN with resources to defend the Naira.”

According to analysts at Coronation, “In our base case scenario, we see the foreign exchange rate at the I&E FX window at N505/ USD by end-2023. We considered: stable growth in non-oil exports boosted by the RT 200 foreign exchange program, continuous injections by the CBN (avg. seven per cent of total inflows on a m/m basis), halt to fuel subsidy payments by end-H1 2023.”

However, the report by FMDQ stated that exchange rate volatility increased marginally in February 2023 as the Naira traded within an exchange rate range of N461.00 -462.17 against the dollar compared to N461.00 -N462.00 against the dollar recorded in January 2023.

The report also revealed that secondary market turnover on FMDQ Exchange in first two months of 2023 stood at N27.7trillion compared to N28.36trillion in first two months of 2022.

For the month of February 2023, the total value of corporate bonds listed on FMDQ Exchange in stood at N115.00billion.

“As a result, the total outstanding value for corporate bonds increased MoM by 6.94per cent or N97.30billion to N1.49trillion in the review month. The total value of Commercial Papers (CPs) quoted on FMDQ Exchange in February 2023 was N101.84billion, representing a MoM increase of 22.40 per cent or N18.64billion from the value of CPs quoted in January 2023. As a result, the total outstanding value of CPs increased MoM by 65.31per cent or N144.69billion to N366.25billion, ”the report added.