November 6, 2023/FBNQuest Research
Our chart today, sourced from data from the CBN’s Quarterly Statistical Bulletin, shows that total value foreign exchange (fx) inflow into the Nigerian economy fell by -4% q/q and -15% y/y to USD16.6bn in Q2 ’23. The trend of fx inflow has been declining since Q1 2020, when it reached USD42.5bn, almost reaching peak levels of USD 44.3bn in Q3 2014. However, the Q2 2023 fx inflow is the lowest level observed since March 2017, when it fell to USD14.9bn. In terms of the split, the total inflow comprised of autonomous fx inflow of USD11.2bn, or about 67% of the total inflow. The balance of USD5.4bn represents fx inflow through the CBN.
The low level of fx inflow primarily reflects the limited accretion to the gross official reserves due to a sharp reduction in export proceeds from crude oil sales following the low productivity of the oil sector.
In addition, foreign portfolio inflows have been limited. Challenges with FX liquidity and the inability of foreign portfolio investors (FPIs) to repatriate their funds have made Nigeria less attractive to foreign investors.
The latest capital importation figures for Q2 ’23 show that the total value of capital imported into the country decreased by -9% q/q and -32% y/y to slightly over USD1.0bn in Q2 ’23.
As a result of the limited access to fx, the total outflow of fx from the economy also decreased by -25% q/q and -34% y/y to USD7.4bn.
This figure comprised of USD6.4bn outflows through the CBN and USD1.0bn outflows through autonomous channels.
To address FPI concerns over the backlog of foreign exchange, the CBN has settled part of the USD6.7bn swaps outstanding with commercial banks.
However, the amount offset so far is only a fraction of what is outstanding, and most of the beneficiary banks are international banks. Nevertheless, it is a good initial step.
Like the rest of the market, we are also looking forward to the anticipated inflow of USD10bn, which the finance minister recently mentioned is imminent in a few weeks.
We believe that this much-anticipated inflow, upon arrival, will have a significant impact on the market.
