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Economy | Nigeria Economy

Short-term Boost to the Services Account

Oct 13, 2020   •   by   •   Source: Proshare   •   eye-icon 724 views

Tuesday, October 13, 2020 / 09:39 AM / ByFBNQuest Research / Header Image Credit: NMJN Accountants


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TheCBN's latest Quarterly Statistical Bulletin shows that debits on the servicesaccount plummeted from US$9.03bn to US$3.39bn in Q2 2020. We might term thedecline a short-term benefit of the virus that helped to reduce the deficit onthe current account (Good Morning Nigeria, 07 October 2020). It takes us backto 2016 and part of 2017, when the CBN was also effectively rationing fx forall users. The current position is worse in that the airports were closed tointernational traffic through the quarter. Travel debits slumped from US$3.55bnin Q1 2020 to US$120m.

                                                                                             

The debits in the quarter consisted largely of other business servicesof US$1.83bn and transportation of US$0.95bn.  The other services weretechnical and trade related, professional and management consultancy fees. Inthe absence of international air travel, the debits for transportation were forsea freight. Given the challenges for all end-users in accessing fx, it isinteresting that these debits were only US$20m lower than in Q1.

 

Credits on the services account fell from US$1.12bn the previous quarterto US$0.82bn. Transportation accounted for 54% of the total.

 

Looking ahead to the data release for Q3, we would expect a comparablelevel of debits on the services account and for similar reasons: air travel wasstill banned, and Nigerians were unable to utilize the allowances availablefrom the CBN for education, medical treatment and holidays abroad.

 

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

 

Transactions on the services account (US$ bn)

 

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Sources: CBN; FBNQuest Capital Research

 

The benefit to the balance of payments is only short term of coursebecause, once fx is again readily available, the debits will return to previouslevels. They averaged US$9.68bn per quarter in 2019.


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