In Nigeria, the official foreign exchange market has been grappling with forex turnover struggling to surpass the $300 million mark, a level last witnessed during the early days of forex unification. This situation underscores the lack of enthusiasm among forex traders for Nigeria’s official exchange rate market.
Analyzing the Investor and Exporter (I&E) window, where official forex trades take place, it’s evident that the daily turnover has consistently hovered just above $100 million since the introduction of the unification policy. This figure has remained virtually unchanged since the onset of the COVID-19 lockdown, highlighting the enduring scarcity in forex supply.
The persistently low turnover also reflects the reluctance of Nigerian businesses to rely on the official market for their daily forex needs, with many favoring the parallel or “black” market. This trend not only underscores the market’s inability to address the estimated forex backlog and swaps with banks but also contributes to the continuous depreciation of the naira.
Over a 90-day trading period, it was found that the I&E Window last exceeded a daily turnover of $300 million on June 16th, reaching $311 million. Subsequently, it crossed the $200 million mark only a few times and dipped below $100 million for a significant 59 days, indicating subdued market participation.
The exchange rate disparity between the official and black markets has surged beyond 25%, with the official rate around N765/$1 and the black market rate surpassing N1020/$1.
Foreign investors are still hesitant to engage in the Nigerian forex market, preferring the parallel market due to its higher and more volatile rates. Despite the Central Bank of Nigeria’s efforts to boost liquidity, the demand for foreign exchange remains unmet.
The consequences of this situation are dire for the private sector, leading to difficulties in importing essential materials, equipment, and increased inflationary pressures. Achieving a stable exchange rate is crucial, and the central bank governor is actively seeking solutions to restore confidence in the market and prevent further depreciation of the naira.
