Nigeria’s forex scarcity, huge blow to investor confidence – Rewane’s FDC
The Financial Derivatives Company Limited has said the scarcity of foreign exchange in Nigeria is a huge blow to investor confidence.
The FDC, led by foremost economist Bismarck Rewane, said the country’s weakening currency and the uncertainty about the central bank’s plan to shift to a market-determined price mechanism would continue to be a major drag on foreign direct investment.
“The unavailability of forex, which is a major constraint to the repatriation of profits and persistent currency weakness amid projections that the naira could still depreciate, is a huge blow to investor confidence,” the FDC said in its monthly economic update.
It said the country received $5.85 billion capital importation (inflows) in the first quarter of 2020, out of which FDI accounted for only 3.66 per cent ($214.25 million).
According to the FDC analysts, more FDI inflows will help boost external reserves, which is favourable for exchange rate.
They said currency depreciation continued across the various segments in July.
At the parallel market, the naira was said to have depreciated by 3.26 per cent to close the month at 475/$ from 460/$ at the start of the month.
The FDC said at the interbank market, the currency traded flat at N361/$ for the first week of July before weakening to close the period at N381/$.
It said this was largely due to the Central Bank of Nigeria’s forex rationing and exchange rate adjustment at the official window to N381/$ from N361/$.
The naira lost 0.71 per cent at the investors and exporters’ window to close at 389.25/$ on July 29 from 386.5/$ at the beginning of the month, according to the company.
The analysts said, “We expect an increase in forex demand as economic activities further improve. This will further weaken the currency.
“Currency depreciation will increase the cost of import as well as service costs of dollar obligations. As a result, corporate margins could fall, especially for companies that are import-dependent.”
