January 9, 2024/FBNQuest Research
According to the most recent monthly economic report from the Central Bank of Nigeria (CBN), total foreign exchange (fx) inflow into the Nigerian economy increased by 10% m/m to USD5.7bn in Aug ’23. Underscoring the m/m rise in fx inflow was an increase of 17% q/q in fx revenues from autonomous sources to USD3.3bn. In contrast, fx inflow through the CBN, which accounted for 43% of the total fx inflows, declined by -6% m/m to USD2.4bn in Aug ’23. However, on a y/y basis, fx inflow into the economy fell by -19% y/y to USD5.7bn.
The reduced y/y value in fx inflow into the economy can be primarily attributed to the minimal accretion to gross official reserves due to low production of crude oil.
For context, Nigeria’s gross official reserves depleted by about c.5.0bn from the beginning of the year to Dec ’23, indicating an average monthly depletion rate of USD456m.
Other factors include the concern around fx liquidity, the backlog of outstanding fx payments, and the CBN’s outstanding fx swaps to commercial banks. All these have discouraged potential foreign investors from injecting fresh capital into the economy.
For instance, the latest capital importation data from the National Bureau of Statistics show that the value of capital imported into the country in Q1 ’23 fell markedly by -36% q/q and -44% y/y to a paltry USD655m.
The figure represents the lowest quarterly figure recorded for capital inflows since Q1 ‘13 and compares unfavourably with an average quarterly figure of c.USD5.0bn before the COVID-19 pandemic began in Q2 ’20.
Regarding fx outflows, aggregate fx outflows through the economy increased by 8% m/m to USD3.4bn.
Although fx outflow through the CBN increased by 6% m/m to USD3.0bn, the higher value of fx outflow was primarily driven by a rise of 22% m/m in in fx outflows via autonomous sources to USD400m.
Combined, the overall fx flows resulted in a net fx inflow of USD2.3bn, implying an increase of 14% m/m.
Notably, the CBN has settled about USD2bn from its backlog of foreign exchange in a bid to restore investors’ confidence and strengthen the naira exchange rate.
