How Nigeria can stimulate FX availability & investments

Nigeria continues to grapple with the challenges posed by the volatility in the foreign exchange (FX) market, with the need for more efforts to consolidate the harmonization of FX rates in order to stimulate private capital investments. Ola Oyetayo, the Co-founder and CEO of Vertofx, emphasized the importance of unifying FX rates and improving supply from non-oil exports proceeds to address the current challenges. He highlighted the significance of increasing the supply of foreign exchange from sources such as remittances to alleviate the pressure on the country's reserves, which are currently heavily reliant on oil receipts. The disparity between rates in the parallel market and the Investors' and Exporters' (I&E) window remains a key concern. Oyetayo emphasized the need to bridge this gap by enhancing availability and encouraging FX earners to contribute to the market. He noted that a significant volume of about 60 million dollars per week could potentially address liquidity challenges in the market, particularly for essential needs such as travel expenses, school fees, and medical costs. By allowing non-bank participants like Vertofx to supply the market directly with foreign receipts, the retail segment could be better served, reducing reliance on the parallel market. Vertofx has shown its capacity to contribute to FX supply, having provided approximately four million dollars per day in the weeks following the harmonization of rates. The company cooperates with commercial bank partners to channel funds into the I&E window, catering to the FX requirements of corporate clients. However, the recent widening of the spread has somewhat limited supply, indicating the importance of resolving rate differentials to boost FX inflows and address retail demand. Looking ahead, the upcoming meeting of the Monetary Policy Committee (MPC) is expected to address critical issues in the FX market. Concerns about inflation, interest rates, and attracting foreign investors by offering competitive local rates will likely feature prominently in the discussions. The recent interventions, including the NNPC's procurement of a three billion dollar volume from Afrixin Bank and the operational guidelines for Bureau de Change operators, aim to stabilize the Naira amidst market volatility. Oyetayo also highlighted the need for the Central Bank of Nigeria (CBN) to consider supplying the retail segment through BDCs to alleviate pressure on FX rates. By facilitating access to FX for retail needs, CBN could contribute to stabilizing the market and reducing speculation. Addressing these key issues is crucial to creating a more efficient FX market that stimulates investments and bolsters economic growth in Nigeria. In conclusion, Ola Oyetayo's insights shed light on the essential steps needed to enhance FX availability in Nigeria and foster a conducive environment for private capital investments. As stakeholders work towards unifying FX rates, improving supply from non-oil sources, and addressing rate differentials, the path to a more robust and sustainable FX market becomes clearer.