Nigeria remains hopeful of getting more foreign exchange (FX) inflows into the country, after FX users consumed more dollars in three months through December 2023 compared to the preceding quarter, according to the latest Quarterly Statistical Bulletin from the Central Bank of Nigeria (CBN).
The inflows are likely going to come from NNPC-related flows, World Bank budget financing and potential Eurobond issuance.
For investors – and Nigeria’s ability to attract further FX-stabilising inflows into local currency markets, this matters a great deal, said, Razia Khan, managing director, chief economist, Africa and Middle East Global Research, Standard Chartered Bank.
Nigeria’s naira is expected to strengthen in the coming months as pressure from forward central bank foreign exchange contracts eases after the market absorbed the equivalent of $1.3 billion last week.
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That’s according to Rand Merchant Bank in Lagos, which estimates outstanding forward contracts will total just $198 million between now and December.
According to her, outside of the mention of remittances, however, (estimated at 6.0 percent of Nigerian GDP), there was little mention of other likely inflows. NNPC-related flows, World Bank budget financing and potential Eurobond issuance – would all go some way towards stabilising the naira. But there was little in the way of an update on any of these potential sources of FX inflows.
The report revealed a quarterly increase of 21 percent in the total value of foreign exchange utilised within the Nigerian economy to $4.1 billion.
Despite the quarterly increase, the figure represents a substantial year-on-year (y/y) decline of 46 percent and marks the second lowest recorded over the past eight quarters, FBNQuest said in a report on Thursday.
The quarterly growth was largely driven by a notable rise in FX usage for invisible imports, which saw a 55 percent q/q increase to USD 1.5 billion. Meanwhile, merchandise imports accounted for 64 percent of total FX utilisation, growing by 21 percent q/q to USD 2.6 billion.
In the realm of goods imports, the industrial sector emerged as the largest consumer of FX, utilising $1.3 billion, or 51 percent of the total FX for goods. However, this represents a four percent q/q decline. Food product imports increased by 8 percent q/q, amounting to USD 493 million and accounting for 19 percent of the total. Manufactured products followed, with imports amounting to $340 million, representing 13 percent of the total FX used for goods.
Within the invisible segment, financial services dominated, accounting for nearly $1.5 billion, which is a 41 percent q/q increase and represents approximately 72 percent of the total FX used by invisibles. Business services also saw a significant rise, increasing by almost 250 percent q/q to $ 225 million.
The CBN’s data indicate that, excluding the uptick in Q4 2023, the overall trend of FX utilisation has been declining since Q4 2022. This trend reflects the prevailing FX liquidity challenges during that period.
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“Looking ahead, the CBN anticipates higher FX utilisation figures in the coming quarters. This expectation is based on the relative improvement in FX access for firms and other users, following the implementation of reforms aimed at enhancing market liquidity,” analysts at FBNQuest said.
As Nigeria continues to navigate its FX landscape, the reforms introduced by the CBN are expected to play a critical role in stabilising and potentially increasing FX utilisation, thereby supporting various sectors of the economy.
The CBN has set an ambitious target to double remittance flows into the country within one year. “We’ve set ourselves a target to double remittance flows into Nigeria within a year, a goal I firmly believe is within reach,” Olayemi Cardoso, governor of the CBN said recently.
