Q4 2020 BoP: Shrinking of the Services Deficit for Now


Thursday, June 10, 2021 / 10:33 AM / by FBNQuest Research / Header Image Credit: Businessday


The services deficit on the balance of payments (BoP) rose to USD3.22bn in Q4 '20 from USD2.14bn the previous quarter but was sharply lower than the USD9.26bn posted in the year-earlier period. The y/y improvement (and q/q deterioration) suggest that Nigerians have started tentatively to make use again of their allowances for education, health and business travel-related spending. We see from the CBN's Quarterly Statistical Bulletin that debits on travel stood at USD1.43bn in Q4 '20, compared with USD0.45bn the previous quarter and USD3.27bn one year earlier. The narrative is similar with debits on transportation and other business services. The pick-up in Q4, albeit gentle, may come as a surprise in view of the challenges of accessing fx.


We detect possible green shoots in the rise in credits from insurance. The industry's net deficit has narrowed to USD110m in Q4 '20 from USD340m one year earlier.


The tertiary (services) sector is easily the largest of the three in Nigeria but makes a very modest contribution to exports. Along with the development of agricultural and cement exports, this is another route towards the diversification of the economy and the resilience of the BoP.


Case studies from other countries include air transportation (Ethiopia), medical tourism and outsourcing (India), recreational tourism (South Africa, Egypt, Senegal and Kenya), and offshore financial services (Mauritius).


There are nil credits posted under Other personal, cultural and recreational services in the BoP. This prompts questions about the recorded earnings from Nollywood, which has struggled more than most industries under life with the virus (Good Morning Nigeria, 25 May 2021).


Once we have learnt to live "normally" with the virus in our midst and fx is again freely available, Nigerians will again draw on the authorized fx allowances and the services deficit will return to previous levels. The latest improvement is therefore short-term. The net outflow averaged USD9.68bn per quarter in 2019.


The pressure on the current account will then again gather momentum. The only plausible rescue in the near term lies in a rapid increase in oil export revenue from the development of positive trends for both price and production


Transactions on the services account (USD bn)

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Sources: CBN; FBNQuest Capital Research

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