February 20, 2024/FBNQuest Research

Today, we continue our discussion on the balance of payments (BOP), and we shift our focus to the services account, a crucial component of the current account. As shown by our chart below, the services account registered a slightly higher net deficit of -USD3.3bn in Q3 ’23 compared with a net deficit of -USD3.2bn in Q2 ’23. The net deficit in Q3 is roughly equivalent to 4.0% of GDP.

Despite the q/q increase, the deficit on the services account is still much lower than the deficit run-rate of USD5bn to USD9bn that was observed prior to the Covid-19 pandemic.

The recent decline in the services position can be attributed to the prevailing macroeconomic challenges, particularly concerns related to fx liquidity.

The higher net deficit position of the services account in Q3’ 23 was primarily due to an increase in the net debit for travel services to -USD1.1bn from -USD603.3m in Q3 ’22.

Notably, within the travel items, expenditures on health and education services increased to USD120m and USD544m, from USD113m and USD376m in Q2 ‘23, respectively.  

Despite accounting for about 53% of GDP in Q3 ’23, the impact of services on Nigeria’s external balance is quite minimal.

There is a significant demand for imported services in Nigeria. However, the country’s export of services is relatively limited. As a result, the services account has consistently maintained a net deficit position.

Nigeria’s leading services import include health, education, tourism, business, and transportation, which suggests that the country lacks a competitive advantage in any of the services sub-sectors.

While the federal government (FG) has implemented several initiatives to develop the country’s goods sector, there is a lack of targeted and effective promotional strategies for exporting services