According to data released by the Nigerian Exchange (NGX), foreign involvement in the Nigerian equity market fell to 8.15% in January 2024, down from 13.92% and 12.76% in the corresponding month of 2023.
In the Nigerian stock market, transactions totaling N651.52 billion were registered in January 2024, compared to N343.9 billion in the same month the previous year.
Foreign portfolio investments made up N53.11 billion of the N651.52 billion during the study period, while domestic transactions totaled N598.41 billion.
Following the COVID-19 outbreak, foreign investments in Nigeria drastically decreased and have remained low ever since, primarily because of currency volatility and dollar illiquidity.
One barrier preventing foreign investors from entering the Nigerian market has been their inability to quickly repatriate their profits when they become due.
The naira has depreciated by 21% and 41% YTD at the official and parallel markets, respectively, against the US dollar due to strong demand for greenbacks and poor foreign inflows.
The CBN has distributed numerous guidelines and circulars to the various market participants in the nation, including commercial banks, IMTOs, and BDCs, among others, to control foreign exchange volatility in the nation.
A few of these changes include the foreign exchange market’s unification and banks’ decrease of Net Open Positions to 20% for short positions and 0% for long positions to reduce speculative activity in the market. The central bank also instituted a two-way quote system and eliminated all margin restrictions for IMTO payments.
Despite this, the official market’s FX supply has increased, but the exchange rate has stayed between N1500 and N1600. Therefore, to increase supply, new dollar inflows must be drawn in.
To inspire confidence and draw in new foreign investment, the governor of the CBN, Yemi Cardoso, met with foreign portfolio investors last week to brief them on some of the measures implemented by the top bank to preserve price stability and liberalize the FX market.
In his answers to queries from the different stakeholders, he outlined some of the CBN’s significant initiatives, such as clearing more than $2 billion in FX backlogs.
Except for five commercial banks, the CBN governor reported that the bank has cleared its foreign exchange backlog; the remaining banks will be cleared in the upcoming days.
