July 25, 2023/FBNQuest Research
Today, we turn our attention to the utilisation of foreign exchange (fx) by the various sectors of the economy. According to CBN data, the total sectoral utilisation of fx through official channels was flat (-0.7%) q/q at USD7.5bn. However, on a y/y basis, it increased by 10% y/y. The total figure comprised fx usage for the importation of visible goods which increased 4% q/q to USD4.9bn or around 66% of the total fx utilised during the quarter. Fx utilisation for the importing invisibles such as financial services, education, and health fell by -9% q/q to USD2.6bn.
With respect to the importation of goods, the industrial sector had the highest demand for fx, accounting for USD2.5bn or 51% of total fx usage for goods. This represents a 12% increase q/q (13% y/y).
Its strong demand can be linked to the importation of raw materials and capital goods such as plants and machinery used in manufacturing.
The importation of manufactured goods declined -29% q/q to USD745m, which represents roughly 15% of the total fx utilised for importing goods.
Fx usage for imported food products was flat q/q at USD678m. However, it was up by 28% y/y.
In terms of fx usage for invisibles, financial services sustained its top spot. It declined 3% q/q (+9% y/y) to USD1.9bn or 72% of the total fx used for invisible trade.
Other sectors that were also on the fx utilisation chart within invisibles were educational and business services. Both sectors declined by -30% q/q and -12% q/q to USD219m and USD218m respectively.
It is also worth mentioning that fx utilisation for other services, typically one of the largest within the invisibles segment fell 44% q/q to just USD99m.
Although the CBN recently removed restrictions on the fx market, and the naira has been floated, fx liquidity remains a challenge.
Looking ahead, we anticipate that the fx liquidity constraints will ease over the medium term as the backlog of trapped FPI funds is addressed, and investors’ confidence in Nigeria gradually rekindles following meaningful reforms by the current administration.
