…The decline is attributed to a contraction in foreign inflows (12.6% of total transaction value)
SAT AUG 03 2024-theGBJournal| Data from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) dropped to a five-month low in July, decreasing by 4.4% m/m to USD1.92 billion (June: USD2.01 billion).
The decline is attributed to a contraction in foreign inflows (12.6% of total transaction value) as the collections from foreign sources declined by 51.4% m/m to USD243.30 million (USD500.20 million) on the back of weaker collections from foreign portfolio investments (-58.8% m/m) and other corporates (-32.1% m/m) despite the rebound in foreign direct investment (+1,705.9% m/m).
The weaker foreign inflow is also attributed to the frail foreign investor participation in the Nigerian Capital Market following the renewed concerns on increased currency conversion and market risk associated with the tight FX liquidity and the volatility in the naira.
However, inflows from local sources (87.4% of total transaction value) increased by 11.1% m/m to USD1.68 billion (June: USD1.51 billion) supported by larger inflows from the CBN (+348.1% m/m) and individuals (+12.3% m/m) segments, while inflows from non-bank corporates (-6.9% m/m) and exporters (-4.5% m/m) declined.
Over the short term, analysts at Cordros Research say they expect FX liquidity conditions to remain frail, mainly due to weak CBN intervention.
”In addition, we think FX liquidity concerns, the elevated global interest rates and geopolitical uncertainties may keep foreign inflows subdued in the near term.”
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