By Tunde Abidoye
Nigeria is still battling with foreign exchange (FX) inflows despite efforts by the Central Bank of Nigeria (CBN) to boost liquidity in the space.
In its latest Quarterly Statistical Bulletin for the fourth quarter of 2020, the apex bank said the total FX inflows into the Nigerian economy in the period declined by 6.4 per cent quarter-on-quarter and 42 per cent year-on-year to $24.8 billion.
Although aggregate inflows have increased since they bottomed out to a 3-year low at the height of the pandemic, they have not recovered to pre-COVID levels.
FX inflows through the CBN increased 17.1 per cent quarter-on-quarter to $8.2 billion (or 33 per cent of total inflows), thanks to a 48 per cent quarter-on-quarter rise in non-oil receipts to $6.8 billion.
A $2.0 billion category titled others including FGN loans underpinned the increase in non-oil receipts. On a net basis, the CBN’s swap arrangements grew 117 per cent quarter-on-quarter to $792 million.
In contrast, oil receipts fell 44 per cent quarter-on-quarter to $1.3 billion due to i) Nigeria’s adherence to its OPEC oil production quota, which resulted in a decline of 0.1 million barrels per day and, ii) a decrease in NNPC’s share of oil and gas exports.
Autonomous sources (other than the CBN) contributed $16.6 billion in forex inflows or 67 per cent of overall inflows. It was supported by a 10 per cent increase in over-the-counter (OTC) purchases (under invisible transactions), which included capital imports, home remittances, and other OTC purchases which we reckon are mostly linked to bonds.
A further breakdown of OTC purchases showed that capital imports and home remittances shrunk by 25 per cent quarter-on-quarter and 52 per cent quarter-on-quarter respectively.
The drop in capital imports can be attributed to Foreign Portfolio Investors (FPIs’) waning appetite after a worsening of FX liquidity, induced by a sell-off in oil prices as the pandemic worsened. Remittances also suffered a blow from the weak economic growth and employment levels in migrant-hosting countries.
Drawing from a different data series, we note that workers remittances in the balance of payments accounts which provides a more holistic view of remittances also slumped by 31 per cent quarter-on-quarter to $4 billion in Q4 ’20 and 28 per cent year-on-year to $17 billion in FY ’20.
In an effort to boost remittances, the CBN in December 2020 said beneficiaries could take their remittances from licensed International Money Transfer Operators (IMTOs) in US dollars. It also increased the number of authorized IMTOs.
In March 2021, the bank followed this up by launching its Naira 4 Dollar Scheme. Under the scheme, diaspora remittance recipients are rewarded with an extra N5 for every dollar wired through official routes.
FX outflows through the economy increased by 24.1 per cent quarter-on-quarter to $9.2 billion. About 97 per cent of total outflows were routed through the CBN.
The strong increase in forex outflows reflects a rise in CBN FX interventions at multiple intervention windows, notably the restart of FX sales to bureaux de change operators and at the investors and exporters (I&E) window in August ’20 after a five-month hiatus.
Despite the increase in outflows during the quarter, FX outflows remain below pre-pandemic levels, due largely to the CBN’s import compression strategies.
FBNQuest Researchs’ conversations with FPIs and domestic investors indicate that greater FX liberalisation (including further adjustments to the FX rate) and the loosening of FX controls such as the CBN’s 42-item FX restriction list are prerequisites to open the tap of portfolio flows.
Tunde Abidoye is the Head of Equity Research at FBNQuest. Additional information by Business Post