The economy of Nigeria has experienced a significant boost with an inflow of $1.4 billion after the lifting of foreign exchange restrictions.
This positive development has been welcomed as a result of President Bola Tinubu’s bold economic reform, which saw the removal of the multiple exchange rate system that had artificially elevated the value of the Nigerian currency, the naira.
In June, Nigeria witnessed a surge of $1.41 billion into its currency market, according to the central bank. This influx can be attributed to the decision to eliminate the FX restrictions, resulting in the naira weakening by over one-third. This move resonated positively with investors, as indicated by the increased inflows.
The significance of this achievement becomes apparent when compared to the previous month’s inflows. In May, before the removal of the restrictions, the central bank recorded inflows of $1.14 billion. Thus, the removal of the FX restrictions resulted in a substantial increase in inflows, indicating the positive impact of this economic reform.
It is worth noting that the majority of the inflows in June originated from companies and exporters. This demonstrates the confidence and trust that businesses have placed in the Nigerian economy after the removal of the constraints that had hindered trade and economic growth.
To fully appreciate the impact of this event, it is important to understand the context. Prior to the imposition of the FX restrictions in 2017, Nigeria’s currency market was vibrant and handled trades worth hundreds of millions of dollars on a daily basis. However, the implementation of these restrictions had dampened economic activity and hindered the growth of the market.
The increased inflows signify a renewed interest from investors, and businesses are benefiting from a more favourable exchange rate. This development is a testament to the resilience of the Nigerian economy and its ability to attract foreign investment.
The currency market in the nation faced further decline as foreign investors reacted to the drop in oil prices. As a result, many foreign investors have withdrawn from local assets and have not returned fully. Additionally, the central bank is still struggling to meet the demand for dollars, including the needs of foreign investors looking to transfer their funds out of the country and airlines wanting to send earnings from ticket sales overseas.
As a consequence of these dollar shortages, several businesses and individuals have resorted to utilising the unofficial black market where the currency has considerably less value compared to the official rate. For example, on a recent Thursday, the naira reached an unprecedented low of 920 per dollar on the black market, significantly contrasting with its value of 771 naira on the official market.
This situation highlights Nigeria’s ongoing economic difficulties and showcases the steps being taken to navigate through them. The global community will be closely observing how these shifts impact Africa’s largest economy in the long term.