Based on the medium-term spending plan report for 2024–2026, Nigeria had a total foreign exchange inflow of $72.4 billion in 2022, a 23.3% decrease from the $94.3 billion recorded in 2021.
The most recent data contrasts sharply with the $115.6 billion in foreign exchange inflows received by the country in the 2020 fiscal year. According to figures from the budget office, foreign dollar inflow into Nigeria decreased by 37.4% between 2020 and 2022.
In the same time frame, capital imports into the biggest economy in Africa have declined for three years in a row. The drop in foreign exchange inflows is attributed by analysts to the appeal of overseas assets.
According to research analysts from LSintelligence Associates, the investment climate in Nigeria has been difficult due to negative interest yields on investments despite an increasing rate of inflation.
The Central Bank of Nigeria (CBN) supplied $15.27 billion in foreign exchange to the economy overall at that time in 2022. This resulted in a 15.3% decrease in comparison to the $18.03 billion given in 2021.
A quarterly report released by the budget office stated that the small and medium-sized businesses, invisibles, and the Investors and Exporters FX window received the CBN forex sales. In the first half of 2023, the apex bank said in a report that it used $5.78 billion to defend the local currency at the Investors and Exporters FX window.
Seen its seesaw market intervention has lost steam, the monetary authority bit the bullet with a large naira devaluation in June 2023. Unfortunately, the FX reform has also failed to clear the road to exchange rate unification. Foreign exchange reserve in Nigeria has seen a steady decline in recent years due to forex inflow challenges driven lack of foreign investors’ confidence in the economy.
“Nigeria recorded a total foreign exchange inflow of $72.4 billion in 2022, marking a 23.3% decline compared to the $94.3 billion recorded in 2021 and also a 37.4% decline compared to $115.6 billion received in 2020”.
Conversely, a total of $40.99 billion was recorded as an outflow in the same period, slightly lower than $41.62 billion recorded in the previous year, according to the report. This indicates a net surplus of $31.39 billion in 2022.
The report explained that CBN’s dollar supply in the FX market has been impacted by the drying inflows of dollar into the Nigerian economy.
“Total foreign exchange supply by the CBN to the economy in 2022 amounted to $15.27 billion, 15.3% lower than $18.03 billion supplied in 2021, all of which were supplied to I&E window, small and medium-scale enterprises, and invisibles”.
The decline in FX supplied by the CBN WAS partially attributed to the authority’s decision to halt FX sales to Bureau De Change (BDC) operators as in previous years.
Analysts believe that the sustained decline in FX inflows has also affected the nation’s external reserves as the apex bank continues to defend the naira and fund import bills at the expense of the reserve level.
In 2022, Nigeria’s external reserves declined by $3.44 billion to close at $37.1 billion. As of October 29, gross external reserves printed at $33.331 billion, covering about 7 months of import bills.
The CBN continues to adopt policies towards increasing foreign exchange inflows into the country, especially through non-oil exports and improved diaspora remittances, the budget office said in the report.
It noted that the apex bank has continued to implement measures to attract foreign exchange inflows, especially from portfolio investors, Foreign Direct Investments (FDI) and export proceeds.
Year-to-date, $1.7 billion was repatriated to the economy while about US$970 million was sold at the I&E window. The current level of foreign reserve provides sufficient import cover. However, there appears to be a loss of confidence in the market and consistent erosion of the reserve.
Analysts noted that there has been a steady decline in Nigeria’s capital importation for three consecutive years, from an annual level of $16.812 billion in 2018 to a paltry $5.32 billion in 2022.
Quarterly data also showed capital importation declined by 51.51% from $ 2.187 billion recorded in Q4 2021 to $1.06 billion in Q4 2022.
Trade credits, Loans, and Currency deposits represent the largest component of capital importation in 2022 accounting for 65.17% ($691.23 million) of total capital imported in Q4 2022.
This was followed by Portfolio Investment with 26.89% ($285.26 million) and Foreign Direct Investment (FDI) with 7.94% ($84.23 million). The government is implementing various policy reforms to attract capital inflows.
These reforms aim to create a more investor-friendly climate and enhance the attractiveness of Nigeria as an investment destination but the desired effects are yet to materialise.
Foreign Portfolio Investment (FPI) was the largest amount of capital importation by type, US$3.39 billion. But it was 34.1% lower compared to US$5.14 billion recorded in 2020.
Foreign direct investment in Nigeria was a paltry US$698.78 million, 32% lower than the US$1.03 billion recorded in the preceding year.
