Indications have emerged that there is an ongoing shift in Foreign Exchange (FX) utilisation towards services, mainly financial services, as manufacturers grapple with the expensive foreign exchange pricing.
According to the Central Bank of Nigeria’s (CBN’s) latest Quarterly Statistical Bulletin (QSB), the total sectoral utilisation of FX for imports into the country decreased by -5 percent quarter on quarter (QoQ) to $6.4 billion in Q2 2024.
Conversely, on a year-on-year (YoY) basis, the total utilisation of FX increased marginally by 2 percent year on year (YoY).
Returning to the QoQ trends, the primary factor behind the quarter-on-quarter (QoQ) decrease in FX utilised during the quarter was a -22 percent decline in FX usage for merchandise imports to $ 3.1 billion. Following the QoQ decrease, the share of FX utilised for merchandise imports fell to 49 percent of total FX utilised during the quarter, down from 60 percent in Q1 2024.
FBNQuest Research in its latest report on sectoral utilisation of Foreign Exchange (FX) noted that the industrial sector, which accounted for 53 percent of total goods imports in Q2, experienced a decline in FX utilisation, dropping by -14 percent q/q to $1.7 billion.
Additionally, the import of manufactured products decreased significantly by -32 percent QoQ to $0.4 billion. FX usage for imported food products also decreased by -21 percent QoQ to $0.5 billion.
“The decline in imports of goods such as food and manufactured goods can be attributed to the depreciation of the naira, which has increased the local cost of these items after importation.
“As a result, businesses face higher domestic prices, reducing import demand.
In contrast, FX utilisation for invisible surged by +20 percent QoQ to $3.3 billion, driven primarily by a significant increase in the importation of financial services,” the report highlighted.
Imports for financial services grew by +37 percent QoQ to $3.0 billion. This increase is likely driven by expenses related to information technology, such as banking payment systems, fintech solution, and consulting and advisory services according to FBNQuest.
Regarding other items within invisible, communication services increased to 32 percent QoQ to almost $65 million.
In contrast, FX usage for almost all the other notable lines within the invisible segment declined QoQ.
Notably, FX utilisation for business services plunged by -38 percent QoQ to $0.1 billion.
“We see that FX usage for education also saw a sharp decline of -78 percent QoQ to just $8 million, reflecting the significant naira depreciation,” the report stated.
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