During the first three quarters of 2023, Nigeria obtained a substantial sum of $1.71 billion in external loans intended to enhance the influx of foreign currency into the country. The overall capital inflow, comprising Foreign Direct Investment, Foreign Portfolio Investment, and miscellaneous funds, reached an impressive $2.82 billion during this period, as reported by the National Bureau of Statistics. Remarkably, foreign loans alone accounted for a staggering 60.80 percent of the total foreign exchange inflows that Nigeria has experienced thus far.
On the other hand, the country experienced a deceleration in foreign exchange inflows in 2023. Throughout the reported period, the total amount of capital imported decreased by 33.99 percent when compared to the $4.27 billion registered during the same time frame in 2022. In the initial three quarters of 2022, loans accounted for just 38.56 percent of the foreign exchange inflows, which amounted to $1.65 billion. As per the provided data, the country experienced a decline in both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) inflows. FDI dropped from $383.85 million to $193.4 million, while FPI decreased from $2.16 billion to $843.24 million.
The country floats its currency with hopes of boosting the economy.
However, the naira’s unstable nature in the foreign exchange market has been attributed to the insufficient supply of the dollar. The National Bureau of Statistics provided insight on the inflow of capital imports in the country, stating that in Q3 of 2023, Nigeria received a total of $654.65m, which is lower than the $1.16bn recorded in Q3 of 2022, marking a decline of 43.55%. Additionally, when compared to the previous quarter, capital importation saw a decrease of 36.45 percent from $1.03bn in Q2, 2023.
Other Investments accounted for 77.56 percent, equivalent to $507.77m, of the total capital importation. This was followed by Portfolio Investment at 13.31 percent, amounting to $87.11m, and Foreign Direct Investment at 9.13 percent, totalling $59.77m. Back in June 2023, Nigeria took the decision to float its currency with hopes of boosting foreign exchange (FX) inflows into the economy. According to the World Bank, the naira has depreciated by approximately 40 percent since that time.
Foreign exchange operational efficiency is reinforced with positive moves.
Additionally, the International Monetary Fund made a public announcement that the national currency was experiencing strain, adding that the country had the freedom to approach it for a loan to establish stability in its currency. Also, in a report, the fund mentioned that Nigeria was encountering a significant inflation rate of 26 percent annually in August, along with mounting pressure on the naira. However, in June, the authorities took measures to consolidate the various official exchange rate systems. This positive move will undoubtedly reinforce the foreign exchange markets operational efficiency.
Nevertheless, they highly appreciated the lifting of the ban on the 43 items by the Central Bank of Nigeria recent decision. This signifies a positive move towards adopting a market-driven exchange rate system. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, recently emphasised the anticipation of about $10bn inflows in the near future. The purpose behind this is to effectively address the foreign exchange backlog and establish stability in the naira. He further highlighted the prevailing market conditions, describing it as illiquid and malfunctioning primarily due to the absence of adequate supply.
Availability of foreign exchange is augmented by various factors.
Mr. Edun concluded that various factors have augmented the availability of foreign exchange in Nigeria. These include the rise in production, cost-cutting measures, and transactions like forward sales. Further speaking, he explained that the discussions with sovereign wealth funds have indicated their willingness to invest and offer technological advancements. As a result, there is a promising outlook for a substantial influx of $10bn worth of foreign exchange in the near future, predicted to be a matter of weeks rather than months. To address the persistent shortage of dollars in the nation, the Nigerian National Petroleum Company Limited recently secured an emergency crude oil repayment loan of $3 billion from the African Export-Import Bank.
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