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Foreign exchange (FX) demand in Nigeria dropped in the third quarter of 2024, primarily due to a notable decrease in invisible transactions, according to the Central Bank of Nigeria’s (CBN) latest Quarterly Statistical Bulletin.
Invisible transactions refer to non-physical financial activities such as school fees, student maintenance allowances, medical expenses, and other eligible payments. The report revealed an 11% quarter-on-quarter (QoQ) decline in overall FX utilization across various economic sectors, totaling $5.7 billion in Q3 2024. However, on a year-on-year (YoY) basis, FX utilization surged by 72%, reflecting broader economic shifts.
Invisible Transactions Experience Sharp Decline
The dip in Q3 FX utilization was largely attributed to a 32% QoQ reduction in FX usage for invisible transactions, which totaled $2.2 billion. This decline caused the share of invisible transactions in total FX usage to drop from 51% in Q2 2024 to 39% in Q3 2024.
Experts at FBNQuest noted that the financial sector, typically the dominant consumer of FX within the invisible segment, was the primary driver of this decline. FX utilization for financial services fell by 34% QoQ to nearly $2.0 billion, further illustrating the contraction in this category.
Merchandise Imports and Industrial Sector FX Usage Grow
In contrast, FX demand for merchandise imports rose by 10% QoQ, reaching approximately $3.5 billion. This increase boosted merchandise imports’ share of total FX utilization to 61%, up from 49% in the previous quarter.
Within the industrial sector, imported raw materials, machinery, and equipment accounted for 53% of total FX spent on merchandise goods, making it the largest consumer in this category. Food products emerged as the second-largest category, with FX utilization increasing by 16% QoQ to $633.6 million.
Broader Trends and Future Outlook
FBNQuest highlighted that sectoral FX utilization has generally declined since Q1 2023. This trend is attributed to reduced FX demand following the significant devaluation of the naira.
The report projected a modest recovery in FX utilization across economic sectors, driven by improved FX liquidity and enhanced access to foreign currency. These improvements are tied to the CBN’s ongoing reforms aimed at streamlining FX trading and fostering greater transparency in the market.
The devaluation of the naira has spurred the CBN to implement various reforms to bolster FX liquidity, positioning Nigeria’s economy for gradual stabilization in foreign exchange activity.
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