Thursday, November 18, 2021/ 10:21 AM / by FBNQuest Research / Header Image Credit: FBNQuest
Nigeriaposted a much reduced deficit on the current account in Q2 '21 and its firsttrade surplus since Q3 '19. The driver was an increase of 73% in oil and gasexports on the previous quarter on the back of a strong rise in the oil priceand a modest uptick in output under the watchful eye of OPEC+ (Good MorningNigeria, 17 November 2021). Our focus today is the deficit on the servicesaccount, which widened from USD2.94bn in Q1 '21 to USD4.67bn. The widening inturn was the consequence of record debits on insurance services of USD1.71bn.The net outflow for the industry of USD1.70bn compares with little more thanUSD10m the previous quarter, and requires a detailed explanation from the statisticalauthority. By virtue of the size of the market and the very low penetration ofinsurance in Nigeria, the industry has attracted sizeable FDI from some of theleading global players.
Someof the other debits on services barely moved in Q2. Education and healthrelated spending, and business and personal travel were little changed from Q1and running at roughly half pre-COVID levels.
Wehave consistently pointed out that in time such spending will pick up asNigerians make use of the several allowances available through the CBN. Theservices, and therefore the current-account deficit will again expand. Theimprovement is short term.
Totalcredits on the account in Q2 dipped below USD1bn to USD880m, withtransportation accounting for USD510m.
Nigeriais without an industry that generates substantial services inflows. Examples onthe continent include recreational tourism (Egypt, Kenya, Morocco and others),offshore financial services (Mauritius), and air transport (Ethiopia). Lookingfurther afield, we single out India for medical tourism and IT outsourcing.
Nigeria'sget-out from a succession of current-account deficits stretching back to Q1 '19will not be delivered by services in a hurry.
Itsbest bet remains a dramatic improvement on the trade account, which meansfurther gains in the oil price and the easing of output quota controls byOPEC+ as demand recovery continues under the sunniest forecasts for the globaleconomy.
Thesecond best would be a robust pick-up in workers' remittances in response tothe CBN's incentives such as the Naira 4 dollar scheme. There are tentativesigns of a positive response in the Q2 data.
Transactions on the services account (USD bn) |
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Sources: CBN; FBNQuest Capital Research |
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