February 12, 2019

The lubricant provided by the FPIs

From today’s chart we can see the improvement in fx flows at the CBN since Q1 2017, coinciding with its reforms (the opening of additional windows). The CBN shows its flows in tabular form and covers those from autonomous sources in itstext. Aggregate inflows and outflows in Q4 2018 amounted to US$27.64bn (52.5% CBN) and US$15.54bn (94.0%) respectively, resulting in a net surplus of US$12.10bn. The game changer has been the positive response of foreign portfolio investors (FPIs) to the fx reforms, which we can also see in the balance of payments.

  • In the two most recent quarters covered (Q3 and Q4 2018), there has been a net outflow on CBN transactions. In contrast, the balance is consistently positive for autonomous flows: the monies from FPIs are generally ‘recycled’ in CBN sales of fx to different segments of the economy (see below).
  • Inflows to the CBN have been boosted by successful Eurobond sales in Q4 2017 (US$3.0bn), Q1 2018 (US$2.5bn) and Q4 2018 (US$2.9bn).
  • Greater information is available from the CBN on its total outflows of US$14.60bn in Q4 2018. The greater part consisted of fx sales to authorized dealers of US$9.18bn, divided into: fx forwards of US$3.15bn, sales to bureaux de change of US$2.98bn, sales on NAFEX of US$2.09bn, interbank sales of US$0.82bn and swap transactions of US$0.13bn.
  • Some commentators may be surprised that any data are released on the CBN’s swaps.
Fx flows through the CBN (US$ bn)

Sources: CBN; FBNQuest Capital Research
  • The main point to take home is that these sales to authorized dealers have been made possible by the fx reforms that attracted the FPIs (along with the high yields on offer). The CBN is in no hurry to reverse its reforms for a said free-market alternative.