The total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) declined to a five-month low of $1.92 billion in July, representing a 4.4% month-on-month decrease from the $2.01 billion recorded in June, data from FMDQ revealed at the weekend.

This drop was largely due to a significant reduction in foreign inflows, which fell by 51.4% month-on-month to $243.30 million from $500.20 million in June. The decrease in foreign inflows was driven by weaker foreign portfolio investments, which declined by 58.8%, and other corporate inflows, which dropped by 32.1%, despite a substantial rebound in foreign direct investments (FDIs) which surged by 1,705.9%.

The weak foreign inflows can be attributed to limited foreign investor participation in the domestic market, which is influenced by concerns over currency conversion and market risks associated with tight foreign exchange (FX) liquidity and the volatility of the naira. In contrast, domestic participation in the market increased significantly, growing by 77% as per the Nigerian Exchange Limited (NGX)’s report for June.

According to the NGX’s Domestic and Foreign Portfolio Investment Report, total transactions executed between the current and prior month (May 2024) revealed that total domestic transactions increased by 17.85% from N231.10 billion in May 2024 to N272.36 billion in June 2024. However, total foreign transactions decreased by 33.87% from N124.28 billion (about $83.78 million) to N82.19 billion (about $55.88 million) between May 2024 and June 2024.

Hence, inflows from local sources (87.4% of total transaction value) increased by 11.1% m/m to $1.68 billion (June: $1.51 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.

Reacting to the development, financial experts noted that over the short term, they expect FX liquidity conditions to remain frail, mainly due to weak CBN intervention, adding that amid FX liquidity concerns, the elevated global interest rates and geopolitical uncertainties may keep foreign inflows subdued in the near term.

Sun