Modest Rebound in FX Utilisation in Q3 2021

On Jan 21, 2022

Friday, January 21,
2022 / 09:04 AM / by FBNQuest Research / Header Image Credit: Business West

Data drawn from the CBN’s Quarterly Statistical
Bulletin (QSB) shows that aggregate sectoral utilisation of foreign exchange
(fx) increased by 26% q/q (and 65% y/y) to USD6.4bn in Q3 ’21 from USD5.1bn in
Q2. Similar to the prior quarter, goods accounted for around 57% of fx utilised
in Q3, in continuation of a trend that has emerged since the outbreak of the
pandemic. This contrasts with the pre-pandemic prevalence of invisibles in fx
utilisation. To put things in perspective, between Q2 ’18 and Q1 ’20, the
percentage of invisibles in total fx utilised averaged 66%. The dwindling share
of invisibles can be traced mostly to the sharp decline in fx utilisation by
the financial services sector.

Moving back to Q3 ’21, we see that forex utilisation
for the industrial sector, the largest segment for fx utilisation within
visible trade (goods) increased by 36% q/q and 46% y/y to c.USD1.5bn.

The recovery in fx used on manufactured products,
which climbed by c.21% q/q and 86% y/y, is indicative of the gradual come-back
of the country’s healthy import demand.

Within the invisible segment, forex consumption by the
financial services sector climbed by 14% q/q, accounting for c.77% (or USD2.1
billion) of total fx usage by invisibles in Q3. We think that the sector’s fx
consumption is tied to products like professional services, such as training,
and information technology, among other things.

Overall, the rise in total fx utilisation by the
various sectors can be attributed to the fx market’s somewhat better liquidity
situation during the period.

The central bank’s official reserve was boosted
significantly by the IMF’s USD3.4bn SDR allocation and USD4bn in Eurobond sales
in August and September of 2021.

Based on the CBN’s data, we see that excluding sales
to Bureau de Change (BDC) operators, the bank’s supply of fx through its
various windows increased to USD4.9bn in Q3 from USD4.6bn the prior quarter.

We relate the declining share of invisibles to balance
of payments data which show that Nigerians have not started properly utilising
their allowances for travel, health, education and other related purposes. We
expect invisibles to pick-up once the fx situation fully stabilises.

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