THE Federal Government has a lifeline on its rough road to foreign exchange stability through forex remittances by Nigerians in the Diaspora, according to some financial experts.
Former President, Muhammadu Buhari, had in June 2020 disclosed that remittances home by Nigerians abroad in the preceeding three years exceeded $25 billion annually, describing it as the highest in sub-Saharan Africa.
President Bola Tinubu has primed foreign exchange unification and fuel subsidy removal as key policy directions of his administration, but there are concerns of negative consequences to the policies.
The concerns revolve around increase in foreign debts, and inflation occasioned largely by foreign exchange volatility.
Another key concern is that the supply side of the dollar to the Nigerian economy is weak, which has seen the naira thrown into all shades of volatility.
To key experts, the Federal Government needs to work harder at targeting Nigerians in the Diaspora.
“The immediate goodwill that arise from this liberalisation is that the stocks and shares have appreciated. We are expecting hot money to come in and go out. The big banks are trading and making huge money,” the Lead Director, Centre for Social Justice (CSJ), Eze Onyekpere, told The ICIR.
“Most importantly, let us target our diasporan brothers and sisters. Most of the money they are bringing in annually is welfare money. Let us set up a special purpose vehicle that will ensure they are part of funding some key projects like rail, road, hospitals. If they see you are honest and not tribalistic, Diasporans can work with you. All they need is a trustworthy government,” Onyekpere added.
He stressed the importance of ensuring that the ease of doing business works effectively to attract investments.
“You must correct the signals in insecurity and increase accountability and transparency in governance,” the CSJ director said.
A professor of Energy Economics at the University of Ibadan, Adeola Adenikinju, told The ICIR that though the foreign exchange reform is experiencing initial volatility now, it would find its level much later with increased supply of the dollar.
“Let us give the initiative more time to be able to soak in more funds. But consistency of the policy remains vital for success,” Adenikinju said.
To a professor of Finance and Capital Markets at the Nasarawa State University, Uche Uwaleke, certain conditions must be fulfilled to ensure proper transitioning to currency devaluation.
“You have seen how the market has reacted to the forex situation already. A country must have sufficient reserves before pegging its currency to the dollar to sustain that. Another precondition is to diversify your export base.
“You can have a managed float system like Nigeria is doing, but transitioning will be done with caution. Our external reserves have dropped to about $1 billion since we commenced this forex unification project. This is why the Federal government and sub-nationals must intensify efforts to ensure increased supply and enable the convergence of the rates,” Uwaleke said.
He posited that the Central Bank of Nigeria (CBN) might need to increase interest rates above 18.5 per cent to enable expected capital inflows.
“Central banks all over the world face a dilemma, and that is why the interest rates need to go up to attract capital inflows from foreign investors. Egypt did a similar policy and have not recovered from it till today. The International Monetary Fund is even telling them that they have not done enough,” he said.
He stressed the importance of Nigeria diversifying its export base to attract more foreign exchange into the economy.
Nigeria’s capital importation keeps dropping, a key concern for foreign exchange market
In the fourth quarter of 2022, total capital importation into Nigeria, according to the National Bureau of Statistics (NBS), stood at $1,060.73 million, lower than the $2,187.63 million figure recorded in the fourth quarter of 2021, indicating a decrease of 51.51 per cent.
When compared to the preceding quarter, capital importation fell by 8.53 per cent, from $1,159.67 million in the third quarter of 2022. The largest capital importation during the period was received from a grouping classified as Other Investment, which accounted for 65.17 per cent ($691.23 million) of total capital imported in the fourth quarter of 2022.
This was followed by Portfolio Investment with 26.89 per cent ($285.26 million) and Foreign Direct Investment (FDI) with 7.94 per cent ($84.23 million).
Disaggregated by sectors, capital importation into the production sector recorded the highest inflow of $392.54 million, representing 37.01 per cent of total capital imported in the fourth quarter of 2022.
This was followed by capital imported into the banking sector, valued at $255.45 million (24.08 per cent), and telecoms, with $168.27 million (15.86 per cent).
Capital importation by Country of Origin revealed that capital from the United Kingdom ranked top in the fourth quarter of 2022 with $455.24 million, accounting for 42.92 per cent.
This was followed by the Republic of South Africa and the United Arab Emirates valued at $119.31 million (11.25 per cent) and $116.82 million (11.01 per cent) respectively.
By Destination of Investment, Lagos state remained the top destination in the fourth quarter of 2022 with $600.54 million, accounting for 56.62 per cent of total capital investment in Nigeria.
This was followed by Abuja (FCT), valued at $424.50 million (40.02 per cent).
Categorisation of Capital Importation by banks showed that Citibank Nigeria Limited ranked top in the fourth quarter of 2022 with $308.72 million (29.10 per cent).
This was followed by Standard Chartered Bank Nigeria Limited with $232.45 million (21.91 per cent) and Rand Merchant Bank with $102.00 million (9.62 per cent).
On annual basis, capital importation was $5,328.88 million in 2022, a decrease of 20.47 per cent from $6,700.51 million in 2021.
Nigeria had adopted a market-driven exchange rate policy three weeks ago, leading to an immediate depreciation of the exchange rate from about N471.67/$1 to an average of N765/$1.
In terms of turnover, the import & export (I&E) window recorded a volume of $198.13 million on Monday, June 26, 2023. Total turnover since the revised I&E window was launched is about $1.4 billion.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.