Nigeria’s dollar demand cools as local refining cuts fuel imports, supports naira

Nigeria’s dollar demand cools as local refining cuts fuel imports, supports naira

Nigeria’s demand for foreign exchange eased at the start of 2026 as growing domestic refining capacity reduced the country’s fuel import bill and helped lower overall dollar usage, supporting the naira and contributing to a sharp rise in net foreign exchange inflows.

The naira appreciated to a near one-month high of N1,357.26 per dollar in the official foreign exchange market on Wednesday as liquidity conditions improved amid rising external reserves.

According to the Central Bank of Nigeria’s (CBN) January 2026 Economic Report, total imports declined by 3.0 percent to $4.20 billion in January from $4.33 billion in December 2025, driven largely by a drop in petroleum product imports as local refining capacity expanded.

The report showed that petroleum imports fell by 22.97 percent to $570 million in January from $740 million in the previous month, reflecting the impact of increased domestic refining activities. Although non-oil imports rose slightly to $3.63 billion from $3.59 billion, indicating stronger demand for capital and consumer goods, the decline in fuel imports helped reduce the economy’s overall demand for dollars.

The moderation in import-related demand coincided with a significant improvement in foreign exchange flows through the economy. Net foreign exchange inflows tripled to $9.22 billion in January, compared with $3.11 billion in December.

Aggregate foreign exchange inflows increased by 45.24 percent to $12.23 billion from $8.42 billion in the preceding month. Foreign exchange inflows through the CBN rose to $4.66 billion from $3.69 billion, while autonomous inflows climbed to $7.57 billion from $4.73 billion.

At the same time, foreign exchange outflows declined sharply. Outflows through the CBN fell to $1.57 billion from $3.04 billion, while autonomous outflows dropped to $1.44 billion from $2.28 billion in December. Consequently, net inflows through both official and autonomous channels strengthened considerably during the month.

The decline in demand for foreign exchange was also reflected in sectoral utilisation data. Total foreign exchange utilisation fell by 25.03 percent to $3.40 billion in January from $4.54 billion in December.

Visible imports accounted for $1.86 billion or 52.65 percent of total utilisation, while invisible imports stood at $1.54 billion. The industrial sector remained the largest user of foreign exchange for visible imports, accounting for 38.87 percent of utilisation, followed by manufactured products, oil imports and food products.

For invisible imports, financial services dominated demand, accounting for 93.11 percent of total invisible foreign exchange utilisation.

The easing pressure on the foreign exchange market helped strengthen the naira during the month. The CBN report showed that the monthly average exchange rate appreciated by 2.43 percent to N1,416.52 per dollar in January from N1,450.97 per dollar in December.

The naira also strengthened on an end-period basis, closing at N1,386.55 per dollar at the Nigerian Foreign Exchange Market (NFEM), compared with N1,435.76 per dollar at the end of December.

Market liquidity improved significantly during the period, with average daily turnover at the NFEM rising by 55.28 percent to $587.62 million from $378.42 million in the previous month.

The report also highlighted a surge in foreign capital inflows into the economy. Total capital importation rose to $3.52 billion in January from $1.25 billion in December, largely driven by foreign portfolio investments.

Portfolio inflows amounted to $3.37 billion, representing 95.72 percent of total capital imported during the month, as investors increased purchases of Nigerian bonds and money market instruments. In contrast, foreign direct investment declined by 80 percent to just $30 million, while other investments, mainly loans, fell to $120 million from $160 million.

The banking sector attracted the largest share of foreign capital, accounting for 75.15 percent of total inflows, followed by financing activities with 22.20 percent.

The United States remained the largest source of capital inflows into Nigeria, accounting for 46.25 percent of the total, followed by the United Kingdom with 40.57 percent. Mauritius, South Africa and the United Arab Emirates were among the other major sources of foreign capital.

The January data reinforce a trend that analysts say has become increasingly important in explaining the naira’s recent stability: weaker demand for dollars.

Analysts at Quest Merchant Bank noted that the naira remained relatively stable in April despite a sharp decline in foreign exchange inflows, as softer import demand helped offset pressure on the currency.

According to the bank’s report, FX inflows into the market fell by 30 percent month-on-month to $2.9 billion in April, largely due to subdued foreign investor participation amid escalating geopolitical tensions between the United States and Iran.

Despite the weaker inflows, the naira appreciated by about 1 percent month-on-month to close at N1,374 per dollar in April. The average exchange rate also strengthened to N1,361.51 per dollar from N1,381.18 per dollar in March, indicating lower volatility in the foreign exchange market.

“The subdued import activity can be attributed to escalating tensions in the Middle East, which have disrupted global supply chains and altered trade flows,” the report stated.

Quest Merchant Bank said the slowdown in import demand reduced the need for importers to source dollars, helping to offset weaker foreign exchange inflows and limit exchange rate volatility.

The development suggests that beyond stronger dollar inflows, a reduction in Nigeria’s structural demand for foreign exchange, particularly through lower fuel imports and weaker import-related demand, may be emerging as an important factor supporting the naira and improving conditions in the foreign exchange market. left;”>