Nigeria has received increased remittances and other inflows during the last year, resulting in an increase in foreign currency reserves, commonly known as external reserves. These influxes haven’t, however, succeeded in making the naira stronger.
As to the Central Bank of Nigeria (CBN), the largest economy in West Africa received $553 million in remittances in a single year, from July 2023 to July 2024.
In July 2024, total direct remittance inflows reached $553 million, up from $241.22 million in July 2023, a 129.46 percent increase.
Remittances increased from $196.66 million in July 2022 to $241.22 million in July 2023, a 22.66 percent increase.
During that time, the nation’s economy also benefited from inflows of $3.3 billion from the AfreximBank oil facility and $2.25 billion from the World Bank Group.
Nigeria’s external reserves rose by 8.36% over the same time, providing the top bank with the strength to protect the naira.
According to information gleaned from the CBN’s website, foreign exchange reserves increased from $33.95 billion on July 28, 2023, to $36.79 billion on July 31, 2024.
The naira lost 50.80% of its value against the dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) during the reviewed period.
The naira/dollar exchange rate was quoted at N1,608.73 as of July 31, 2024, according to data obtained from the FMDQ Securities Exchange Limited. This is in contrast to the N791.42 quoted during the same period in 2023.
The naira lost 46.15 percent of its value compared to the dollar, which traded at N867 on July 26, 2023, on the parallel market, sometimes known as the “black market,” where it was valued at N1,610 as of July 31, 2024. The information was gathered from street vendors and internet exchange rate-gathering platforms.
Agusto Consulting’s head of financial institutions ratings, Ayokunle Olubunmi, responded to the impact of the inflows on the naira by stating that, given the low oil production below the Organisation of Petroleum Exporting Countries (OPEC) quarter, the situation would have been worse in the absence of the inflows.
Charlie Robertson, head of macro strategy at FIM Partners UK Ltd., claims that although foreign investors are drawn to Nigeria due to its currency and interest rate characteristics, the inflows are still small when compared to Egypt.
In July 2024, Robertson revealed in an interview that only a few billion dollars had entered Nigeria, even though the country’s high interest rates and widely perceived devalued currency were draws for many. Egypt, on the other hand, has drawn over $20 billion in international capital.
Robertson identified multiple causes for this discrepancy. Interest rates in Egypt are nearly equal to inflation, which makes the investment climate more stable. Furthermore, Egypt has greatly lowered its borrowing rates thanks to a sizeable International Monetary Fund (IMF) bailout package; Nigeria lacks this financial buffer as it makes its own economic changes.
“The Gulf’s support to Egypt has further boosted investor confidence, providing a layer of reassurance that Nigeria has yet to achieve,” Robertson added.
In the long run, Nigeria’s strategy, which focuses on enhancing its trade balance without requiring outside financial assistance, may stabilize or even strengthen the naira. Robertson hypothesized that Nigeria might experience a spike in both domestic and foreign investment if it is successful, perhaps drawing billions more into the nation. Nevertheless, Egypt continues to be the preferred location for foreign investment up to that point.
The CBN reports that net foreign exchange flows increased to $25.4 billion between January and June 2024, a 55 percent year-over-year rise.
Record inflows of diaspora remittances through official channels and an increase in capital importation – which hit $6 billion in June 2024 – have propelled this expansion.
The entire amount of foreign currency coming into a nation less the total amount of foreign currency going out over a given period is known as net foreign exchange inflows.
Speaking in February 2024, CBN governor Olayemi Cardoso indicated that two main factors – a decline in the supply of US dollars and a rise in demand, particularly for travel abroad for personal, medical, and educational purposes – are responsible for much of the pressure on currency rates.
Nigeria has witnessed a significant increase in the number of students studying abroad over the last ten years, with foreign exchange demand for healthcare and education reaching around $40 billion during this time. Nigerians applying for Personal Travel Allowances (PTA), which have accounted for $58.7 billion during the same period, are making the rising outflow of cash worse.
Cardoso highlighted the extent of demand by pointing out that the CBN paid out $9.01 billion for individual overseas travel between January and September 2019 alone, highlighting the heavy burden on the nation’s foreign reserves.
Using the Retail Dutch Auction technique, the CBN started selling retail dollars again, and in just two auction days, it sold almost $1.7 billion.
The current naira to dollar exchange rate ranges from N1,597 to N1,620 on the parallel market and is roughly between N1,490 and N1,590 on the official FX market. Over the last two weeks, there has been a minor decrease of 1.16 percent, or $430 million, in external reserves due to the CBNs reintroducing the Retail Dutch Auction method in the foreign exchange market.
The naira is predicted to strengthen more, according to analysts at Financial Derivatives Company (FDC), because of volatility and CBN policy initiatives and guidelines.
Remittances from the diaspora are a vital source of foreign money for Nigeria, supporting both foreign direct investment and portfolio investments, according to the supervisor of the country’s banking system. The CBN’s efforts have encouraged these inflows to keep growing, in line with the organization’s goal of tripling official remittance receipts in a single year.
Hakama Sidi Ali, acting director of corporate communications at the CBN, stated in a recent statement that “the increase in remittances is a strong testament to the success of the CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability, which is essential for sustained economic growth.”
