The total foreign inflow (TFI) to equities has decreased by 90.6% over the last 10 years due to persistent currency illiquidity, inflation, a high interest rate environment, and other macroeconomic factors.
According to an examination of the Nigerian Exchange Limited’s (NGX) Domestic and Foreign Portfolio Investment Report, total foreign inflow decreased sharply from N43 billion in 2013 to N4.6 billion as of March 2023, a 90.6 percent decrease.
However, total domestic transactions increased by 93.7% from N71 billion in 2013 to N137 billion as of March 2023.
The continuing lack of interest from overseas investors in stocks has alarmed stakeholders. In order to stimulate activity in all areas of the economy, including the stock market, they claimed that the government must start implementing the principles of inclusive growth and that policy decisions must be in line with monetary, fiscal, trade, and investment considerations.
The operators claim that despite economic improvements, the depreciating value of the naira has forced foreign portfolio investors (FPIs) to avoid the Nigerian market.
According to independent investor Amaechi Egbo, foreign investors have chosen to wait on the sidelines because the economic policies are unclear.
He made the point that foreign investors would return to the market if the necessary rules were in place.
Egbo further stated that in order to regain investors’ faith in Nigeria, the incoming administration must address the problem of currency illiquidity, which is one of the major obstacles impeding the country’s economic progress.
Dr. Muda Yusuf, the Center for the Promotion of Private Enterprise’s (CPPE) Director/Chief Executive Officer, emphasized the necessity for the monetary authorities to develop a durable intervention framework to ensure the moderation of the current volatility in the foreign exchange market.
The CPPE Director stated that despite the restrictions on the supply of foreign exchange, the system needs to be handled in a way that would not erode investors’ confidence, as loss of confidence leads to speculation and changes expectations, which in turn leads to a variety of responses among economic players.
“Over the last few years, there had been a cumulative backlog of unmet foreign exchange demand, running into billions of dollars as a result of acute illiquidity in the foreign exchange market”
“With a more liberalised forex market, the pressure of the backlog of unmet demands and other maturing forex related obligations have been unleashed on the investors and exporters window.”
“It is evident that the frequency and scope of CBN intervention in the forex market had decelerated compared to the first five months of the year. Recent reports from the CBN indicate a total of $17 billion in intervention by the CBN in the forex market in 2022.”
“This is an average of N1.4 billion per month. Since the inception of the present administration, it is doubtful whether we had seen an intervention of up to $1 billion in total. It is expected that as the scale of intervention improves, the volatile will be subdued.”
In order to protect the market from speculative attack and illegal capital outflows, he encouraged the CBN to conduct better monitoring over FX demands.
