Rising outflows on the services account

Nigeria reported a current-account deficit in Q3 2018, the first for two years. The driver was a 70.5% q/q surge in merchandise imports, which was explained by the National Bureau of Statistics as the result of imports of drilling platforms for the energy sector (Good Morning Nigeria, 20 December 2018). Now that the balance of payments data are available in more detail in the CBN’s latest Quarterly Statistical Bulletin, we can see the related sharp increase in freight costs to US$960m in Q3 from US$540m the previous quarter.

  • A second reason for the marked increase in total services debits in Q3 from US$6.34bn to US$8.59bn can be found in the segment for personal travel: debits rose from US$1.78bn to US$2.52bn over the quarter.
  • This underpins a point we have frequently made. Business travel debits were little changed, reflecting the weakness of the broader economy, while spending on personal health and education needs has soared. The CBN makes fx available on a regular basis to retail for invisibles. Debits for both health and education have been steadily rising, and have totaled US$1.30bn and US$3.51bn over the past four quarters respectively.
  • Credits on the services account in Q3 amounted to just US$1.56bn, consisting principally of travel and transportation.
Transactions on the services account (US$ bn)

Sources: CBN; FBNQuest Capital Research
  • Several emerging economies boast substantial services credits on the current account. Egypt, for example, has reported a services surplus for 2017/18 (July-June) of US$11.1bn, compared with US$5.6bn the previous year, on the back of Suez Canal receipts of US$5.7bn and a positive balance on travel (tourism) of US$7.4bn.
  • Nigeria will not become a leading destination for foreign tourists in a hurry. Its best bet on the services account is probably monetizing the film industry.

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