Nigeria’s exchange rate risks surpassing N600/$1 at the unofficial FX market as foreign investors who were paid dividends for the 2021 financial year seek to repatriate their earnings.
Naira currently trades at a record high of N588/$1 on the black market, as demand pressure continues to drive the rate higher. Similarly, the peer-to-peer market exchange is currently trading at N583/$1 according to information gathered by Nairametrics team.
However, Naira stands the risk of further depreciation, following dividends declared by major corporations in the local equities market to their shareholders, which also involves foreign investors who would want to repatriate their funds.
Read: Exchange rate weakens across FX markets as demand pressure persists
Major corporations like GTCO, Zenith Bank, Dangote Cement, Lafarge Africa, Access Bank, Nigerian Breweries, MTN Nigeria amongst others have all declared final dividends in naira for their 2021 financial year, while Seplat Petroleum declared a dividend per share of $0.075. It is worth noting that some of these dividends have been paid in March, others are to be paid in April and May 2022.
Meanwhile, most of these dividends declared are paid in the local currency, which means that foreign investors who wish to take home their returns or earnings will have to exchange them for dollar, further driving the rate higher.
This is compounded by the decline in FX inflows into the country. Recent data released by the National Bureau of Statistics reveals that Nigeria’s capital importation declined to its 5-year low of $6.7 billion in 2021. The decline is attributed to the significant drop in both direct and portfolio investments.
Read: Exchange rate weakens at P2P market as oil price edges towards $100
A major glance at the NGX foreign portfolio report showed that foreign transactions on the local bourse dropped by 40% to N424.5 billion from N729.2 billion recorded in the previous year. In the same vein, FPI contribution to the total trade on the NGX also dropped from 33.63% to 22.88% in the review year.
What BDCs are saying
In a discussion with Bureau De Change operators in Lagos State, they told Nairametrics that the coming election in 2023 is already having an effect on the FX market, as demand for forex has surpassed supply, which has further affected the exchange rate.
According to Abdulai, he explained that politicians and stakeholders are now buying and keeping FX for their campaigns for next year, which has affected the liquidity in the market, with supply not improving.
Similarly, Anwal Usman a BDC operator in Lagos also stated that the volatility in the FX market is attributed to the crunched supply of forex while demand has skyrocketed in recent weeks.
“Dollar demand has increased significantly, especially since election is fast approaching, which is why the exchange rate has gone up,” he said.
Optics
- At the official Investors and Exporters window, exchange rate closed at N416.33/$ on Friday last week, representing a 0.08% depreciation compared to N416/$ recorded in the previous trading session.
- A sum of $119.64 million was traded on the last trading session in the previous week, which is 16.3% lower than the $142.95 million traded on Thursday.
- The continuous decline in FX inflows into the Nigerian economy has placed significant pressure on the local currency, which has seen Nigeria’s foreign reserve fall by $991.94 million year-to-date to $39.53 billion.
- Although, continuous intervention in the official market by the apex bank has kept the FX rate stable at N416 to a dollar at the I&E window.
- While Nigerians are still grappling with the surge in the prices of commodities and services, following the global energy crisis, food inflationary pressure, erratic power supply, a further depreciation in the naira will cause more burden for average Nigerians.
