Dollar demand declines in Q3 2024 as invisible transactions drop

Dollar demand by various sectors of the Nigerian economy, also referred to as foreign exchange (FX) utilisation, fell by 11 percent to $5.7 billion in the third quarter of 2024, primarily driven by a reduction in invisible transactions.

This marks a notable decline from the previous quarter, as FX usage for non-physical transactions, which include services such as travel, insurance, and remittances, saw a sharp drop of 32 percent, falling to $2.2 billion.

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According to data from the Central Bank of Nigeria’s (CBN) Quarterly Statistical Bulletin compiled by FBNQuest, invisible transactions now account for approximately 39 percent of total FX utilisation, down from 51 percent in the second quarter (Q2) of 2024.

The financial sector, which has historically been a dominant consumer of foreign exchange in this category, was the key driver behind this steep quarterly decline. FX consumption by the financial services sector dropped by 34 percent quarter-on-quarter (q/q), reaching nearly $2.0 billion.

On the other hand, foreign exchange demand for merchandise imports saw a modest increase of 10 percent q/q, rising to nearly $3.5 billion. This uptick in demand for physical goods brought the share of merchandise imports in total FX utilisation to about 61 percent, up from 49 percent in the previous quarter.

Within this category, the industrial sector emerged as the largest consumer, accounting for roughly 53 percent of the total forex used for imported raw materials, machinery, and equipment. Additionally, forex demand for food products— the second-largest category in merchandise goods. It’s FX utilisation rose by 16 percent q/q to $633.6 million.

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Overall, the trend in FX utilisation has shown a decline since the first quarter of 2023, largely due to decreased demand following the substantial devaluation of the Naira.

However, with the central bank’s continued efforts to enhance FX liquidity and improve access to foreign currency, it is expected that demand for dollars will see a modest rebound in the coming months.

The CBN’s ongoing measures, including streamlining FX trading and boosting market transparency, are anticipated to ease pressure on the foreign exchange market and facilitate more stable access to foreign currency across various sectors of the economy.