In our concluding discussion on the balance of payments, we take a look at the services account. The chart below shows that the net deficit on the services account increased to USD3.6bn in Q2 ’22, roughly equivalent to 3.3% of GDP from USD2.8bn in Q1 ’22 (2.6% of GDP).    However, the deficit on the account is still much lower than the net deficits recorded over the eight quarters prior to the pandemic, which ranged between USD5bn to USD9bn.  As such, the low levels of net deficits on the services account have also helped to keep the current account in a net surplus position over the past five quarters.

The deterioration in the services account, relative to Q1 ’22, was mostly due to higher net debits for transportation and travel, which increased to USD1.8bn and USD740m compared with USD1.2bn and USD561m respectively in Q1 ’22.

One of the likely drivers of the increased demand for transportation and travel services is the recent exit of mostly young Nigerian professionals to western countries, a phenomenon known locally as "Japa".

Despite the rise in services imports, the CBN’s demand management strategies and stricter documentation requirements for fx allocation to eligible users have curtailed the value of fx sourced through official channels.

The services account typically runs on net debits because Nigeria has not developed a vibrant services industry capable of generating substantial fx inflows.

This is in contrast with peers such as Egypt, Kenya, and South Africa that can generate sizable fx inflows from services such as tourism, or Mauritius, which is able to do so through offshore banking and financial services.

Further afield, India serves as an example of a country that has successfully built an information technology export services sector.

Like the situation with non-oil exports, the creation, and implementation of a medium-term strategy for the development of a vibrant services sector can help in the country’s quest for export diversification.

However, achieving this will require significant investments in human capital particularly in the areas of education, health, and security and infrastructure.