Foreign exchange scarcity forces Nigerian companies to turn to parallel market – Bitcoin News

Nigeria’s persistent foreign exchange shortage is forcing businesses and businesses to source this resource in the parallel market, said a former official with the Lagos Chamber of Commerce and Industry (LCCI). According to Muda Yusuf, the former general manager of LCCI, these shortages are due to the liquidity shortages in the currency markets that arose in the first half of 2021.

Investment risk

As noted in a report based on July 8, 2021 data, revenue in one of Nigeria’s many official foreign exchange markets fell 24.5% to $ 526.79 million. The report adds that most of these deals were made at the exchange rate of “between N400 and N460 to the dollar”. In contrast, the parallel market exchange rate of the Nigerian naira is currently N505 per dollar, according to Abokifx.

Speaking at the Finance Correspondents Association of Nigeria (FICAN) forum, Yusuf warned that such foreign exchange shortages could negatively affect the country’s banking system. Yusuf stated:

Foreign currency liquidity increases investment risk, which could have a negative impact on the quality of assets in the banking system. Foreign currency loans make up between 30 and 35 percent of banks’ loan books. Exchange rate volatility is associated with risks related to asset quality and financial stability.

Conducive business environment

The report quoted Yusuf as advocating a conducive business climate which he insists will create “more investment opportunities” for financial institutions. In addition, more profitable asset classes are needed to make such profitable investments, he said.

Yusuf is also quoted as saying “the need to address the structural, political, institutional and regulatory constraints in the business environment that would also lead to a decline in non-performing loans in the banking sector”.

What do you think Nigeria needs to do to end the currency shortage? Let us know what you think in the comments section below.

Photo credits: Shutterstock, Pixabay, Wiki Commons, Tayvay

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