The Central Bank of Nigeria’s (CBN) Quarterly Statistical Bulletin for Q3 2024 reveals a notable shift in foreign exchange (FX) demand dynamics, marked by a significant decrease in invisible transactions. These transactions, encompassing payments for services like education, healthcare, and other eligible transfers, experienced a substantial decline, driving down the overall FX utilization. While the total FX usage across various sectors reached $5.7 billion, an 11% decrease compared to the previous quarter (Q2 2024), it’s important to contextualize this dip against the backdrop of a substantial year-on-year increase of 72%. This indicates a complex interplay of factors influencing FX demand, with the decline in invisible transactions playing a central role in the quarter-on-quarter contraction. This shift in demand patterns signals evolving economic priorities and potentially reflects adjustments in individual and institutional behavior in response to currency fluctuations and policy changes.
The decline in invisible transactions, amounting to a 32% quarter-on-quarter reduction to $2.2 billion, significantly reshaped the overall composition of FX usage. The share of invisible transactions in total FX utilization dropped from 51% in Q2 2024 to 39% in Q3 2024, underscoring the magnitude of the contraction. Financial services, typically a dominant force within the invisible transactions segment, experienced a pronounced decline, with a 34% quarter-on-quarter drop to nearly $2 billion. This suggests potential adjustments in financial sector activities, perhaps driven by strategic decisions in response to the evolving economic landscape and FX market conditions. The decreased demand for FX in this crucial sector highlights the ripple effects of broader economic trends and policy changes on specific industry segments.
In contrast to the decline in invisible transactions, FX usage for merchandise imports demonstrated resilience, increasing by 10% quarter-on-quarter to almost $3.5 billion. This growth propelled the share of merchandise imports in total FX utilization to 61%, up from 49% in the previous quarter. Within this segment, imported raw materials, machinery, and equipment for the industrial sector constituted the largest share, accounting for 53% of the FX expenditure on merchandise goods. This indicates continued investment in productive capacity and industrial development despite the overall decline in FX utilization. The demand for imported food products also saw a notable increase, rising by 16% quarter-on-quarter to $633.6 million, further diversifying the composition of merchandise imports and reflecting ongoing needs for essential goods.
The observed trends in sectoral FX utilization reflect the broader economic adjustments following the naira devaluation, a significant policy move impacting various aspects of the Nigerian economy. Since Q1 2023, a general decline in FX demand has been observed, largely attributed to the devaluation’s impact on import costs and subsequent adjustments in spending patterns. The devaluation likely led to a reevaluation of import reliance and stimulated efforts to source goods and services domestically. This shift in demand dynamics underscores the complex interplay between currency valuation, import behavior, and overall economic activity. The devaluation’s influence on different sectors highlights the importance of understanding the nuanced responses to such policy interventions.
Looking ahead, analysts at FBNQuest anticipate a moderate recovery in FX utilization across various economic sectors. This projection is based on anticipated improvements in FX liquidity and access to foreign currency facilitated by the CBN’s ongoing reforms aimed at streamlining FX trading and enhancing market transparency. These measures are intended to create a more efficient and accessible FX market, potentially encouraging greater participation and facilitating smoother transactions. The anticipated increase in FX liquidity could alleviate some of the constraints faced by businesses and individuals seeking foreign currency, potentially leading to increased imports for productive activities and essential goods.
The CBN’s ongoing efforts to improve FX market functionality are crucial for navigating the evolving economic landscape and supporting sustainable growth. The reforms aimed at enhancing transparency and streamlining trading processes are expected to contribute to a more stable and predictable FX market, which can boost investor confidence and facilitate economic activity. The anticipated improvement in FX liquidity and access, coupled with the observed adjustments in sectoral demand patterns, suggests a potential rebalancing of the Nigerian economy as it adapts to the post-devaluation environment. The interplay between policy interventions, market dynamics, and sectoral responses will continue to shape the trajectory of FX utilization and overall economic performance in the coming quarters.
