Many Nigerians who usually travel abroad for business and social services could not do that much in 2020, as sectorial utilisation of foreign exchange showed that the invisibles sector dropped by over $2 billion (64.51%) in one year.
This was due to the lockdown of the global economy as well as travel restrictions following the outbreak of COVID-19 pandemic last year.
The invisibles sector consists of services that involve monetary exchange such as healthcare services abroad, education, financial services, and tourism and travel related services, among others.
At the end of the year (December 2020), the sector’s forex utilisation declined to $1.1 billion compared to $3.1 billion recorded in December 2019, data from Central Bank of Nigeria (CBN) indicated.
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Most analysts polled by BusinessDay attribute the year-on-year (YoY) slump in forex utilisation by the invisibles sector to pandemic lockdowns and travel restrictions.
However, they are optimistic that this will improve in 2021 following the reopening of the global economy and the pick-up in activities.
“With the reopening of several economies once again, we should expect the invisible sectorial utilisation to grow in 2021 but not up to 2019 levels as the constraints to travel still remain and will cap the number of outbound holiday trips,” notes Jimi Ogbobine, head of consulting at Agusto Consulting, a pan-African credit rating agency.
For instance, he says, “You have to do multiple COVID tests for most journeys outside of the country, which is a constraint for several potential travellers.”
Ogbobine notes that the contraction in 2020 is largely due to the reduction in travel by outbound holiday makers and other outbound medical trips due to the COVID-19 pandemic.
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“You will recall that the lockdowns across several countries and the controls on foreign travel implied that many couldn’t request for FX for the invincible services from the official markets,” he states.
The financial services sub-sector, which accounts for the larger chunk of the invisibles sector, decreased by 68.92 percent to $891.92 million in December 2020 from $2,869.65 million recorded in December 2019.
Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, attributes the decline to global restriction of movements of people and some services.
He believes that there would be improvement because of the reopening of the economy and global movements.
The business services sub-sector that accounts for the second largest chunk of the invisibles sector dropped to $93.70 million in December 2020, as against $106.92 million in December 2019.
“The main reason for the drop YoY was due to the travel and business restrictions globally,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, says.
He notes there was significant slowdown in tourism outside the country as well as travel for healthcare, saying this limited the FX demand for invisible sectorial utilisation.
Meanwhile, imports rose by 25.27 percent to $1,650.64 million in December 2020 from $1,317.59 million in December 2019.
In the first quarter of 2021, total foreign exchange utilisation by sectors decreased by 40.3 percent from the preceding month to $2.75 billion, reflecting a drop in end-user demand for foreign exchange, owing to year-end ease in economic activities.
The CBN’s economic report for Q1 2021, reveals that visible and invisible imports, constituting 46.9 percent and 53.1 percent of the total foreign exchange utilisation declined by 53.4 percent and 20.7 percent to $0.77 billion and $0.87 billion, respectively.
A disaggregation of foreign exchange utilisation for visible transactions showed that the amount utilised for industrial, manufactured products, and food products sub-sectors amounted to $0.30 billion, $0.23 billion, and $0.16 billion, respectively, relative to $0.72 billion, $0.38 billion, and $0.31 billion in the preceding month.
Also, oil, transport, agriculture, and mineral subsectors amounted to $0.05 billion, $0.02 billion, $0.008 billion, and $0.006 billion, respectively, in January 2021, compared with $0.15 billion, $0.05 billion, $0.02 billion, and $0.02 billion in December 2020.
