Foreign Exchange Trading Decreased 75% in 8 Years

Foreign Exchange Trading

In the last eight years, the total amount of foreign transactions conducted on the equities market has decreased by nearly 75%. This decline can be attributed to market uncertainty, political risk, foreign exchange (FX) illiquidity, and other obstacles.

According to a review of the Nigerian Exchange Limited’s (NGX) Domestic and Foreign Portfolio Investment Report, total foreign transactions, which peaked at N99.11 billion in January 2015, fell to N24.9 billion by January 2023.

Similar to this, total foreign inflow, which made up 48% of all market activity in 2015, decreased to 9% by January 2023.

However, within the same time span, total domestic transactions skyrocketed, rising from N90 billion in 2015 to N170 billion in 2023.

Further analysis of the data reveals that total foreign transactions, which were recorded as N80 billion in May 2015 but were N40 billion in the equivalent month in 2016, fell by 50% one year after President Buhari’s inauguration.

Additionally, the percentage of foreigners entering the country, which was 54% in 2015, declined to 20% a year after the president took office.

Operators have encouraged the Federal Government to establish a framework for a new foreign currency market so that market mechanisms can set the exchange rate and produce a predictable exchange rate because they are disturbed by the ongoing capital flight.

They contend that the incoming administration must develop policies and initiatives that would lead to the development of a vibrant venture capital sector in Nigeria.

According to David Adonri, vice president of Highcap Securities Limited, if the government doesn’t alter the country’s investment climate through its monetary and fiscal policies and improve economic conditions, investments may eventually stop flowing into the country.

He made the argument that the recent fall in foreign direct investment (FDI) can be directly attributed to concerns about Nigeria’s escalating insecurity, political risk, and currency problems.

“Foreign investors’ confidence in the capital market has continued to deteriorate. In 2015, foreign investor’s participation in NGX was 54 per cent but it depreciated to 17 per cent in 2022.”

“Forex scarcity and capital controls by the CBN has kept many foreign investments trapped in Nigeria. The outcome of the general election that brought in President Muhammadu Buhari to power in 2015 was unexpected and depressing for investors.”

“It greatly eroded investors’ confidence in the capital market. And when added to his indolence at combating the economic challenges he inherited from the previous administration, the attendant deterioration of the economy caused the equities market investors to lose a huge amount of money.”

The current administration has continually introduced public sector domineering policies, according to Tajudeen Olayinka, chief executive officer of Wyoming Capital and Partners, which have remained disincentives to investment.

He asserts that there is a need to implement measures that would assure a good balance of involvement from domestic and foreign investors and increase market vibrancy now that a new administration, which is anticipated to be more suitably focused on private sector domination, is about to be established.

Olayinka emphasized that Nigeria urgently needs foreign investment to help the nation get through an adjustment program that will unavoidably be put in place soon.

He continued by saying that for the nation to flourish, it needs a healthy balance of both domestic and foreign investment.

“The economy is yet to embark on a full transition programme, even though, government is in transition,” he said.

Dr. Paul Uzum, Head of Equity at Planet Capital, urged the next administration to enact bold reforms that would solve the lack of foreign exchange, lower inflation, increase GDP, and address insecurity.

He believed that if these problems were properly resolved, they would have a good effect on the economy, the capital market, and revive foreign investment in the market.

 

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