First Securities Discount House Limited (FSDH) Merchant Bank Limited has expressed concern over Nigeria’s balance of payment (BoP). This is despite the projection of a positive outlook for the BoP by the Central Bank of Nigeria.
BoP is like the financial accounts of individuals and businesses, which could be in a surplus or in deficit. If it’s in a surplus, it means that the country receives more money from other countries than it pays out.
Meanwhile, FSDH’s fear is fueled by the country’s dependence on oil and gas transactions which the bank said makes the Balance of Payments fragile.
FSDH further stated that the net inflow of money into the nation’s economy is a reflection of fragility.
However, the CBN is unbothered after Nigeria recorded a surplus of $2.8 million in its balance of payment (BoP) in the fourth quarter (Q4) of 2018. Godwin Emefiele, the Governor of CBN, said the country’s Balance of Payments would remain positive in the short-term.
What happened to the diversification of the economy?
FSDH has a point when the reason CBN hinged its optimism on is factored in. Nairametrics had reported that Emefiele said Nigeria’s current account balance could improve further if oil prices continued to recover. This means, if oil fails to meet the projection, the BoP will slip or drag in growth.
President Buhari’s administration had campaigned seriously for the diversification of the economy in order to lift the weight on the oil and gas industry. but the reason given for CBN‘s positive outlook for BoP shows the economy is still very much influenced by activities in the oil industry.
Urgent need for diversification – This shows more needs to be done in creating multiple sources of revenue and foreign exchange earnings for Nigeria. In the meantime, the diversification of the economy is yet to have any meaningful impact. The country is still heavily dependent on oil and gas for its foreign exchange.
Removing multiple exchange rate will facilitate economic diversification?
According to the Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, the removal of multiple exchange rate systems, investment in infrastructure, and improvement in the ease of doing business, will strengthen the impact of diversification of economy on the Nigerian economy.
“This will create jobs, and ensure currency stability and prosperity of the Nigerian economy. Some of the policies we have suggested include the reduction in administrative delays in obtaining licences and approvals, investment in infrastructure through partnership with the private sector, and removal of multiple exchange rate systems.
“The long-term stability of the value of the currency will depend on the ability of the country to generate foreign exchange from multiple sources, and to build domestic capacity to save, invest, and consume goods and services that are produced locally.”
In Q4 2018, Nigeria recorded a surplus of $2.8 million, lower than the surplus of $6.18 billion in the corresponding period of 2017, and higher than the deficit of $4.52 billion recorded in Q3 2018. But generally, this is far from the country’s potential.
According to data by the National Bureau of Statistics (NBS), between Q3 and Q4 2018, Nigeria was able to reduce its imports, and increase its export of goods, leading to a significant reversal of its Current Account balance, with positive effect on the BoP.
But like in previous years, the main drivers of exports were crude oil and gas, representing 93.79 per cent of total exports.