The financial services sector ranks highest in foreign exchanges utilisation in the country, data on forex usage between 2011 and 2014 have shown.
This explains why the Central Bank of Nigeria (CBN) has restricted commercial banks’ trading in foreign exchange (forex) with its new rule. Analysis of the sectoral utilisation of forex by the BusinessDay Research and Intelligence Unit (BRIU) shows that the imports of invisible financial services were the highest consumers of foreign exchanges when compared with other sectors of the Nigerian economy between 2011 and 2014.
This section of the economy has gulped over $60.62 billion, or 31 percent of the total $198.44 billion foreign exchanges used by all the sectors in Nigeria during the period under review.
Other important sectors with significant forex utilisation during the period include visible oil imports, $36.51 billion; imports of visible industrial goods, $31.55 billion; imports of visible food products, $19.89 billion, as well as the imports of manufactured products, $18 billion.
The sectors with the least forex utilisation are imports of invisible tourism and related services, $368.71 million; construction and related
engineering services’ invisible imports, $355.32 million; distribution services’ invisible imports, $260.82 million; imports of invisible recreational, cultural and sporting services, $84.73 million and health related and social services’ invisible imports, $6.31 million.
The analysis of forex usage across the sectors in Nigeria was meant show which of the sectors would feel the waves of the different measures put in place by the Central Bank of Nigeria (CBN) to address the depreciating value of the naira.
In the last five weeks, the naira has lost some ground, consequent upon dwindling oil prices. It is currently being exchanged for N191/$ at the parallel market and that has created wide arbitrage opportunities, going by the current official exchange rate of N168/$.
“The rationale behind the new policy is to ensure stability in the foreign exchange market, reduce speculative and/or artificial demand amidst increasing demand for capital repatriation and import funding”, according to Jolaade Sulaiman, an analyst with Meristem Research.
“To prop up the naira in the medium term, there might be more stringent controls put in place which may take the form of further exchange controls, including but not limited to capping the exposure of local companies to foreign investments and/or borrowing (already being enforced on banks) which also contribute to weakening demand for the local currency, while demand for foreign currencies strengthens”, Sulaiman added.
