Amid Increased Demand, Players Trade N55.77tn FX in 10 Months

Kayode Tokede

Following sustained investors and exporters demand, a total of N55.77 trillion foreign exchange was traded in the first 10 months of 2023, representing an increase of 29.8 per cent when compared to N42.96 trillion traded in corresponding period of 2022.   

This is according to trading activity data obtained from the FMDQ Exchange. 

Foreign exchange transactions, followed by Money Market (MM) and Central Bank of Nigeria (CBN) bills have continued to dominate total secondary market turnover transaction at the FMDQ Exchange.

Other tradable instruments on the FMDQ Exchange include: Treasury Bills, Open Market Operations, and FGN & Other Bonds.

Out of the N184.7 trillion transactions at secondary market on FMDQ Exchange in 10 months, FX and market transactions contributed 30.19 per cent and 23.26 per cent, respectively.

Business activities rebound after the 2023 general elections amid steady rise in global oil prices as global economic activity has been mixed during this year, with distinct signs of improvement in the United States and China.

The FMDQ Exchange data showed that the value of Naira against the dollar depreciated by 80.81 per cent Year-on-Year (YoY) to an average N797.43/dollar as of October 2023.

The data revealed that Naira against the dollar was trading at N441.02/ dollar October 2022 at the Spot FX market.

Analysts attributed the growth recorded in the total foreign exchange turnover to increasing business activities amid double-dight inflation rate. 

However, Vice President, Highcap Securities Limited, Mr. David Adnori stated that the double-dight inflation, and hike in Monetary Policy Rate (MPR) by CBN to 18.75 per cent slowdown foreign exchange demand by investors and exporters.

He added that the backlog of unpaid foreign exchange by CBN also contributed to weak foreign exchange trade so far in 10 months of 2023. 

Also speaking, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, “The global economy growth in 2023 was better than 2022. Same with the Nigerian economy, which has recorded better growth in 2023 than 2022. The growth in foreign exchange turnover trade in 10 months of 2023 is a reflection of demand by investors and exporters.”

Ambrose added that naira depreciation is a function of demand and supply stressing that the central bank in the past 3-4 years has been struggling to meet demand for foreign exchange.

On its part, Investment One research in its report titled, ”2022 Review and 2023 Macro-Economic and Financial Markets Outlook,” said in 2023, a combination of limited inflows from crude oil sales, fragile capital flows and foreign remittances, would continue to hurt the local currency.

According to the report, “While the rising oil production volume is slightly positive for oil earnings and by extension, the reserves, we still think that crude oil production of less than 2 million barrels is unlikely to significantly move the needle on exchange rate. In addition, elevated subsidy payments should curtail oil inflows, albeit the likely suspension of this cost at the 2nd half of the year should be positive for the reserves.

“With yields expected to remain elevated in the global economy, the return of foreign portfolio investors seems remote until risk adjusted returns becomes attractive. More so, the weak macro backdrop and lack of flexibility in exchange rate management remain a headwind for capital flows. With the likelihood of Eurobond borrowing slim, the possibility of an influx of the greenback to support the naira looks unrealistic. However, the continual success of the RT200 FX scheme is a tailwind for the currency at the official market.

“While the nation’s FX reserves may proffer support for the currency, we highlight that the CBN will continue to allow the naira to weaken to c. N480/$ – N490.00/$ at the I & EFX window during the year to aid marginal improvement in balance of payment. As such, we opine that we might not see a devaluation of the naira beyond that level.

“On the positive side, the commencement of operations at Dangote Refinery, slated for 2023, may bode positively for the economy given potential FX savings and inflows,” the report said.

The World Bank had recently described the naira and the kwanza of Angola as the “worst performing currencies” in Africa so far in 2023.

The World Bank in its Africa’s Pulse report — a bi-annual publication of the office of the chief economist in the World Bank Africa Region, said the decision of the CBN to remove trading restrictions on the official market weakened the naira.

The lender cautioned Ethiopia, Ghana, Nigeria and other countries with two-digit inflation rates to avoid unorthodox interventions that might render their monetary policies ineffective.