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Market | Forex

FX Utilisation Drops by 13% QoQ in Q3 2022

Feb 14, 2023   •   by   •   Source: FBNQuest   •   eye-icon 190 views

According to CBN data, the total value of foreign exchange (fx) utilised by the various sectors of the economy fell by c.-13% q/q to USD7.3bn in Q3 ‘22. The decrease is primarily due to a -28% reduction in fx usage for invisibles to c.USD2.7bn. Underpinning the decrease in fx for invisibles was a -34% q/q decline in fx usage by the financial services sector to USD1.9bn. Despite the decline in fx used for invisibles, the amount used to import goods, which made up about 63% of all fx used, remained stable q/q at c.USD4.6bn.

 

One of the contributing factors to the decline in the value of invisibles is the rationing of fx by the central bank and commercial banks as a result of demand pressure on the naira exchange rate.

 

The recent reduction in the number of times customers can access fx for personal and business travel allowances to twice per year from four times previously highlights the demand pressure on fx.

 

Fx use for educational services which came a distant second in the invisibles segment declined by -6% q/q to USD232m.

 

The industrial sector which typically takes up the largest share of visible imports fell -9% q/q to almost USD2.0bn.

 

In contrast, imports of manufactured goods and food products increased by 9% and 32% q/q to USD979m and US890m respectively.

 

Due to the shortage of fx supply, most manufacturers have to source a significant proportion of their fx needs from the black market. Notably, domestic food prices have been impacted by the higher fx premium paid on the black market.

 

Recently, the Manufacturing Association of Nigeria (MAN), the umbrella body for manufacturing firms in Nigeria, noted that the sector sources about 95% of its fx requirement from the black market.

 

Although the figure may be a bit exaggerated, it drives home the point. With respect to bright spots ahead, steps to ramp-up Nigeria’s crude oil production output, as well as improved prospects for domestic refining of petroleum products may provide some support.

 


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