Tuesday, October 13, 2020 / 09:39 AM / By
FBNQuest Research / Header Image Credit: NMJN Accountants
The CBN's latest Quarterly Statistical Bulletin shows that debits on the services account plummeted from US$9.03bn to US$3.39bn in Q2 2020. We might term the decline a short-term benefit of the virus that helped to reduce the deficit on the current account (Good Morning Nigeria, 07 October 2020). It takes us back to 2016 and part of 2017, when the CBN was also effectively rationing fx for all users. The current position is worse in that the airports were closed to international traffic through the quarter. Travel debits slumped from US$3.55bn in Q1 2020 to US$120m.
The debits in the quarter consisted largely of other business services of US$1.83bn and transportation of US$0.95bn. The other services were technical and trade related, professional and management consultancy fees. In the absence of international air travel, the debits for transportation were for sea freight. Given the challenges for all end-users in accessing fx, it is interesting that these debits were only US$20m lower than in Q1.
Credits on the services account fell from US$1.12bn the previous quarter to US$0.82bn. Transportation accounted for 54% of the total.
Looking ahead to the data release for Q3, we would expect a comparable level of debits on the services account and for similar reasons: air travel was still banned, and Nigerians were unable to utilize the allowances available from the CBN for education, medical treatment and holidays abroad.
Over time, Nigeria could replicate the prominent services industries in other EMs such as transportation (Ethiopia), recreational tourism (Kenya, Egypt, Morocco and South Africa), or medical tourism and outsourcing (India).
Transactions on the services account (US$ bn)
Sources: CBN; FBNQuest Capital Research
The benefit to the balance of payments is only short term of course because, once fx is again readily available, the debits will return to previous levels. They averaged US$9.68bn per quarter in 2019.