A Structural Deficit On The Services Account

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Friday, July 12, 2019   /09:40AM / By FBNQuest Research / Header Image Credit: FBNQuest Research 

                                                                                     

Along with the fall in oil and gas exports and the rise in non-oil imports, one reason why the current account returned to deficit in Q1 2019 was the continuing deterioration on the services account (Good Morning Nigeria, 04 July 2019). The net deficit on services has widened to 7.5% of GDP from 5.9% one year earlier and only 1.7% in Q1 2017. Now that fx is freely available, debits on the travel segment of services have soared to US$3.63bn from US$1.48bn in Q1 2018 and US$490m in Q1 2017.                      

Of the total for travel debits, education-related expenses were US$1.66bn, health US$680m and business US$420m. This tells us that the Nigerian business climate is subdued, and that Nigeria pays a high price for the shortcomings of its education and health sectors.  

Debits for other business services amounted to US$3.72bn in Q1, compared with US$2.49bn in the year-period. This is another reflection of the transformed availability of fx since the CBN’s reforms. Technical and trade- related payments accounted for US$3.16bn.

Credits on the services account in Q1 2019 amounted to just US$1.33bn, of which travel and transportation accounted for US$1.05bn. In the short term we do not see a dramatic increase in these credits. It would take time to replicate, for example, the tourism industry in Kenya and Egypt, or the outsourcing and IT hub in India.

 

Transactions on the services account (US$ bn)

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Sources: CBN; FBNQuest Capital Research

 

This brings us back to the pivotal oil and gas industry if Nigeria is to post a regular current-account surplus. The crude price is beyond the FGN’s influence obviously but the passage of an industry bill with a new operating and fiscal framework could kick-start investment in existing and new acreage. Non-oil exports can play a supporting role.

 

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