According to the Central Bank of Nigeria (CBN), net foreign exchange (forex) inflow fell by 2.97 percent to US$14.46 billion in the third quarter (Q3) of 2024, from US$14.89 billion in the previous quarter. Net inflow from autonomous sources decreased to US$9.90 billion from US$12.12 billion in the previous quarter. A net inflow of US$4.55 billion was recorded through the Bank. The decline underscores the challenges Nigeria’s FX market faces amid internal variables affecting inflows and global economic uncertainty.
Recent quarters have seen the CBN struggle with erratic foreign exchange inflows, while oil revenue, which is a major source of Nigeria’s foreign exchange reserves continues to fluctuate. Nigeria’s foreign exchange reserves are immediately impacted by any decline in oil prices or production capacity, highlighting the dangers of becoming overly reliant on one commodity. The reduction in forex inflows during Q3 2024 underscores the need for diversifying sources of foreign exchange and improving the country’s Investment climate to stabilise the forex market and mitigate the effects of external shocks.
Inflows via the Bank increased to US$11.86 billion.
Despite this quarter-over-quarter fall, the year-over-year comparison shows a significant growth of 75.91% from $8.22 billion in the third quarter of 2023 to $14.46 billion in the same period of 2024. Meanwhile, foreign exchange inflow through the Economy rose 3.01 percent to US$22.89 billion from US$22.22 billion in Q2 2024. Inflows via the bank increased from US$8.49 billion to US$11.86 billion, a 39.63% increase.
Whereas, autonomous sources dropped from US$13.72 billion to US$11.03 billion, a 19.66% decrease from the previous quarter. Compared to Q2 2024, the economy’s foreign exchange outflow increased by 15.18% to US$8.43 billion. While outflows from independent sources fell by 30.06 percent to US$1.12 billion, those through the bank increased by 27.91 percent to US$7.31 billion. This increase was driven by a 39.63% rise in inflows through official channels, which reached $11.86 billion.
Global economic conditions influenced Nigeria’s capital flows.
Moreover, the fluctuation in inflows and outflows indicates the dynamic nature of Nigeria’s foreign exchange environment. The country’s Economic Growth and development depend on the CBN’s efforts to enact reforms and policy measures that stabilise the foreign exchange market and draw in foreign investment. Inflows into the portfolio and Foreign Direct Investment (FDI) are essential elements of independent forex sources. However, Nigeria’s difficult business climate, which is marked by unclear regulations, inadequate infrastructure, and Security issues, may put off international investors.
Due to these obstacles, inflows from independent sources decreased. Therefore, enhancing the investment environment is crucial to drawing in steady foreign exchange inflows from a variety of sources. The global economic environment in 2024, marked by tightening monetary policies in advanced economies, inflationary pressures, and geopolitical tensions, influenced capital flows into emerging markets like Nigeria, as Investors often seek safer assets in times of uncertainty. The CBN has implemented various policies to stabilise the forex market, including exchange rate unification and adjustments to Monetary Policy rates.
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While these measures aim to improve market efficiency, they may also create short-term uncertainties, leading to speculative activities in the forex market. Such speculation could exacerbate outflows and limit inflows. The fluctuations in Nigeria’s forex inflows and outflows underscore the need for a multifaceted approach to stabilising the forex market. While challenges such as oil Revenue volatility, weak investment climate, and global economic uncertainties persist, there are opportunities for growth through diversification, policy reforms, and strategic investments.