Culled—Proshare

April 2, 2020

By FBNQuest Research                                                                              

Debits on the services account exceeded US$10bn for the first time in Q4 2019, reflecting the fact that Nigeria produces very little in the way of services for its population of about 200 million. Transportation, travel and other business services together comprised 93% of total debits.

The net services outflow/GDP ratio has deteriorated over the past two years because fx has become freely available as Nigeria recovered from its last oil price shock (broadly early 2015 to late 2017). Policymakers will be hoping that the impact of the current price shock will be shorter.                              

Travel debits of US$3.27bn in Q4 were far more personal (US$2.90bn) than business (US$0.37bn). Nigerians enjoy a wide range of fx allowances. They spent US$1.45bn on education, US$0.62bn on healthcare and US$0.82bn on ‘others’, which we assume to be holidays. Annualized, these are substantial outflows on the balance-of-payments (BoP).

Credits on the services account of US$1.12bn were the lowest since Q1 2018. Transportation, travel and financial services together accounted for 84% of the credits.

If we take the Egyptian BoP for H2 2019, we find combined transportation and travel receipts of US$11.64bn (or US$8.59bn net, after associated payments). This surplus does include US$3.03bn from Suez Canal dues.

Over time, Nigeria could replicate the prominent services industries in peer EMs such as transportation (Ethiopia), recreational tourism (Kenya, Egypt and South Africa), medical tourism (India) or IT and outsourcing (India).

Transactions on the services account (US$ bn)

Sources: CBN; FBNQuest Capital Research

For now, the route to easing current-account pressures lies through a combination of rapid import substitution, a sharp pick-up in oil exports (requiring new laws) and perhaps some incentives for the diaspora to remit.