Today we turn our attention to the services account which is one of the drivers of the current account. As shown by our chart below, the services account recorded a slightly higher net deficit of almost USD4.0bn in Q3 ’22, or c.3.2% of GDP, compared with a net deficit of USD3.8bn in Q2 ’22. Despite the increase in Q3, the deficit on the services account is still much lower than the deficit run-rate of between USD5bn to USD9bn recorded before the COVID-19 pandemic. A reasonable explanation for this is the central bank's stringent application requirement for fx usage and the rationing of fx supply as a result of demand pressure on the gross external reserves
The increased deficit on the account was primarily driven by net debits of USD2.1bn and USD1.2bn for transportation and other business services.
Other contributor items were net debits of USD595m and USD145m on travel and insurance-related services.
Notably, expenditure on travel-related items such as education and health amounted to USD495m and USD109m respectively, far below the pre-COVID era run rate of roughly USD1.5bn and USD650m.
The balance on the services account has historically delivered net deficits because Nigeria has not developed a vibrant services industry capable of generating substantial fx inflows.
Services make up a large portion of the GDP (52% Q3 ‘22). However, its impact on the external balance is negligible.
Although there have been various efforts by the central bank and other government agencies in boosting non-oil exports through various credit schemes, enough attention has not been given to the promotion of services export.
A robust strategy aimed at developing a thriving export-led services sector would require investments in human capital, particularly in the areas of education, information technology, and tourism amongst others.