Nigeria’s external reserves, also known as foreign currency reserves, jumped by $490 million in one week following the successful issuance of domestic dollar bonds by the Debt Management Office (DMO).

Data from the Central Bank of Nigeria (CBN) showed that the external reserves grew to $36.73 billion as of September 10, 2024, from $36.24 billion recorded on September 2, 2024.

On August 19, 2024 the Nigerian Government issued $500 million, the first series of the $2 billion domestic US dollar bond to investors, to stabilise the economy.

During the hybrid roadshow of the domestic US dollar bond in Lagos on August 15, 2024, Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, said the move would enhance foreign currency reserves.

The naira on Wednesday recorded 5.06 percent gain on the official foreign exchange (FX) market following an increase in dollar supply to $221.24 million in one trading day.

After trading on Wednesday, the naira appreciated by 5.06 percent as the dollar was quoted at N1,558.75 compared to N1,637.59 quoted on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from the FMDQ Securities Exchange Limited.

In what is considered a landmark transaction, the Federal Government raised over $900 million from investors.

The bond, which was over 180 percent subscribed, marks a crucial step in broadening Nigeria’s funding avenues amid global economic headwinds. It reflects growing investor confidence in the nation’s economic outlook.

According to him, the move aims to stabilise the exchange rate, manage inflation, and ultimately reduce interest rates.

We are very pleased to announce the successful launch of this crucial domestic issuance of Federal Government U.S. dollar bonds to the investing public and other stakeholders. Under President Bola Ahmed Tinubu, the macroeconomic reforms have made bold and courageous strides to stabilize the economy while fostering innovation, creativity, and imagination among all economic actors, including those in the financial markets,” Edun stated.

He added, “This historic issuance will provide essential foreign exchange liquidity and boost reserves, which will help stabilise the exchange rate, manage inflation, and eventually lower interest rates. It will also lay the foundation for increased investment by both domestic and foreign direct investors.”

With three months left before the deadline set for Bureau De Change (BDC) operators to meet new capital requirements, compliance remains elusive as operators cite stringent conditions. This is raising concerns over the retention of their operating licences.

In May 2024, the Central Bank of Nigeria (CBN) released new operational guidelines for BDCs, which became effective on June 3, 2024.

The guidelines require all existing BDCs to reapply for new licenses under one of two categories—Tier 1 or Tier 2—and meet the capital requirements for their chosen category within six months.

For Tier 1 BDCs, the minimum capital base is set at N2 billion, while Tier 2 BDCs must have at least N500 million. Additionally, operators must pay non-refundable license fees of N5 million for Tier 1 and N2 million for Tier 2.

However, three months into the process, there has been no significant movement towards recapitalisation, mergers, or acquisitions within the sector.

“Nobody is ready to pay that amount,” a BDC operator told BusinessDay anonymously. The source said the BDCs have lodged their complaints to the CBN but the apex bank has ignored them. The conditions do not favour us. “It is too stringent. Going into mergers and acquisitions will not profit anybody”, he said.

Although Aminu Gwadabe, president of the Association of Bureau De Change Operators of Nigeria (ABCON), could not respond as of press time, he said in June 2024 that the CBN has not responded to the association’s inquiry seeking clarity on the implementation of the guidelines.

He said the financial requirements amid policy uncertainty, lack of clarity, and increasing naira depreciation make compliance with the new rules unattainable.

He warned that the stringent new requirements could have severe unintended consequences. “I am worried that the unintended consequences might lead to throwing more formalised operators to the informal sectors.”

In an appeal to the Central Bank, Gwadabe urged reconsidering the new guidelines. “On behalf of our members, we appealed to the management of the apex bank to review and re-evaluate the conditions in the new guidelines to avoid driving existing players into extinction, facilitating money laundering, increasing unemployment, and worsening the fragile insecurity situation in the country.”

The CBN in a statement in March 2024, said in the exercise of the powers conferred on it under the Bank and Other Financial Institutions Act (BOFIA) 2020, Act No. 5, and the Revised Operational Guidelines for Bureaux De Change 2015 (the Guidelines), it has revoked the licenses of 4,173 Bureaux De Change Operators.

The statement signed by Sidi Ali, Hakama acting director, corporate communications, reads, “The CBN is revising the regulatory and supervisory guidelines for Bureau de Change operations in Nigeria. Compliance with the new requirements will be mandatory for all stakeholders in the sector when the revised guidelines become effective.”

In the first quarter of 2024, the apex resumed dollar sales to BDCs. On Friday, the CBN increased liquidity in the foreign exchange market by selling U.S. dollars to Bureau De Change (BDC) operators at a rate of N1,580 per dollar.

According to a statement issued by W. J. Kanya, acting director of the Trade & exchange department, each eligible BDC will be allocated $20,000 at the approved rate. In turn, BDCs are authorised to sell to end-users at a margin not exceeding one percent above the purchase rate from the CBN.

Despite Nigeria’s external reserves growing by 8.36% in the past year following the surge in remittances and international financial inflows, the naira continues to lose value against the U.S. dollar, declining by 50.80% over the same period.

According to the Central Bank of Nigeria (CBN), the country’s foreign currency reserves rose to $36.79 billion by July 31, 2024, up from $33.95 billion recorded the previous year.

This has been driven by a surge in remittances and various international support packages, including a $3.3 billion AfreximBank oil facility and $2.25 billion from the World Bank Group.

The CBN reported that total direct remittance inflows increased by 129.46% to $553 million in July 2024, compared to $241.22 million in July 2023.

Remittances had similarly climbed by 22.66% in the prior year, reflecting the importance of diaspora funds in boosting Nigeria’s foreign exchange reserves.

Despite these gains, the naira has faced severe depreciation. At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the currency tumbled from N791.42 per dollar in July 2023 to a staggering N1,608.73 per dollar as of July 2024.

In the parallel market, the naira’s performance was similarly poor, dropping from N867 per dollar in 2023 to N1,610 per dollar by July 2024.

The CBN has attributed the pressure on the naira to a combination of factors, including reduced availability of U.S. dollars and rising demand for foreign currency for personal and commercial transactions.

Nigeria has seen a massive surge in demand for foreign exchange to fund education, healthcare, and personal travel, further straining its reserves. Over the past decade, demand for dollars for these sectors reached nearly $40 billion.

In addition to remittances, Nigeria has also benefited from a rise in capital importation and foreign direct investment (FDI), which have collectively pushed net foreign exchange inflows to $25.4 billion in the first half of 2024 — a 55% year-on-year increase.

Despite the increase in reserves, experts argue that Nigeria’s efforts to stabilize the naira have been insufficient.

Charlie Robertson, head of macro strategy at FIM Partners, pointed out that Nigeria’s currency and interest rate dynamics are attracting investors, but at a modest rate compared to other nations like Egypt, which has secured over $20 billion in foreign investments in the same period.

Robertson also highlighted that while Nigeria’s approach focuses on improving trade balance without external financial aid, the lack of sufficient external support has created vulnerabilities that leave the naira exposed to continued depreciation.

While the CBN remains hopeful that ongoing policy reforms and inflows from diaspora remittances will eventually stabilize the currency, analysts remain cautious.

The demand for dollars far outweighs the supply, creating a vicious cycle that continues to erode the naira’s value.