Monday, March 01, 2021   /08:55 AM / By FBNQuest Research/Header Image Credit: FBNQuest Research

Oneof the core weaknesses of the Nigerian balance of payments is the permanent netoutflow on the services account. There has been a short-term improvement in thepast two quarters because of COVID-related restrictions across the worldincluding a halt to international air traffic in Nigeria for much of theperiod. Nigerians made very limited use of the fx allowances for education,health and business travel related spending.

Wesee from the CBN's Quarterly Statistical Bulletin that the net services deficitdeclined to USD1.82bn in Q3'20 from USD2.59bn the previous quarter andUSD8.48bn in Q3'19. The narrative was similar in 2016 and early 2017, when theCBN practised effective fx rationing. Nigerians were then at least able totravel: it is just that they could not secure the allowances.

Travel debits collapsed toUSD0.13bn in Q3'20, compared with the year earlier's USD3.44bn. Educationaccounted for USD0.10bn (vs USD1.51bn  in Q3,19) and the entry for healthrelated spending in the bulletin is negligible (vs USD0.64bn). 

The credits on theservices account have declined during life with COVID-19 but at a far slowerpace than the debits. The selective lockdown and subsequent restrictions wouldexplain the modest decline. The figure of USD0.97bn in Q3'20 consisted largelyof freight costs, other personal travel, and financial, government andinsurance services. (The data show a consistent yet small surplus on governmentservices.)

What Nigeria lacks areservices industries that generate fx earnings. Examples from otherjurisdictions include transportation (Ethiopia), medical tourism andoutsourcing (India), recreational tourism (South Africa, Egypt, Senegal andKenya), and offshore financial services (Mauritius).

The much reduced outflowon services has not brought a current-account surplus, which would have beenthe first since Q2'18 (Good Morning Nigeria, 18 February 2021). Merchandiseimports have been more resilient than expected while net transfers (essentiallyworkers' remittances) have disappointed.

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

Transactions on the services account (USD bn)

Sources: CBN; FBNQuest Capital Research

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