December 2, 2020/Proshare

by FBNQuest Research

Today’s chart shows monthly fx inflows through the economy for the three years to August ’20. It captures movements through the CBN and other (autonomous) sources. On the CBN side, the large inflows tend to be FGN borrowings such as Eurobond sales (in November ’17, and February and November ’18) and the drawdown of USD3.4bn this April under the IMF’s rapid financing instrument to confront external shocks. On the autonomous side, there are substantial flows into ordinary domiciliary accounts (November ’19 through to January). Other autonomous sources have been inflows from foreign portfolio investors (FPIs) as in March ’19 and workers’ remittances. 

CBN inflows have fallen off sharply in the months of the Covid-19 virus and closed international borders. A decline in the NNPC’s share of oil and gas exports was a contributory factor.  

This has been matched by a trend fall in autonomous inflows this year. FPIs have been scarce and the FGN has not tapped the Eurobond market. Banks’ non-oil export receipts have declined in line with fragile external demand, to USD530m in July and USD230m in August.

On a net basis, the CBN outflow has shrunk from USD2.95bn in August ’19 to just USD100m this August. Because of the closure of borders, it made no fx sales to the bureaux de change or at the investors’ and exporters’ (I&E) from late March through to late August.

There is generally a net inflow for autonomous transactions, and this year has been no exception. It reached USD4.66bn in August as invisible payments for business and other services fell to only USD120m.

In summary, the virus and governments’ responses to it across the world have temporarily changed the structure of fx flows in Nigeria. Inflows have fallen dramatically in the absence of FPIs at the entry gate and of Eurobond sales by the FGN, and due to a decline in oil export proceeds. Outflows have fallen still more sharply due to the consequences of the closure of borders, not overlooking the CBN’s absence from the I&E window for five months, which has created an external payments pipeline.

The borders have since reopened but this structure (of fx flows) will remain in place until oil or other fx receipts permit the smooth functioning of such payments.

FX inflows through the economy (USD bn)

Source: CBN;  FBNQuest Capital Research