Nigeria’s current account deficit ballooned to net $2.85 billion (N876 billion) at the end of the second quarter of 2019. This is according to data from the Central Bank of Nigeria. The current account deficit occurs when a country’s foreign liabilities exceed its foreign assets. It is exacerbated when the country imports more than it exported.
In the second quarter of 2018, Nigeria’s current account balance was a strong net positive $4.3 billion highest since the Buhari administration came into power in 2015. Nigeria has reported a negative current account balance in 7 quarters out of the 15 quarters reported under this government. The figures are stated net because the inflows are set-off against outflows thus a negative balance is a deficit.
High import services
A cursory look at the data indicates Nigeria’s services sector has been the major contributory reason for the growing foreign account deficit. The data reveals a net services import was a whopping net amount of $ 8.1 billion in the second quarter of 2019 (Q1 2019: N8.1 billion). Net services imports in the last 4 quarters is now about $31.6 billion compared to $19.6 billion net in the preceding 4 quarters.
Transport & Travel: This sector contributed significantly to the outflow of forex outside the country gulping about $3.9 billion net in the second quarter of 2019 taking it to a combined $8.2 billion in 2019 alone. Transport and travel include items such as passenger travels, freights, business travels, personal travels (education and health). Education-related travel alone has gulped a whopping $3 billion net this year alone.
Tens and thousands of Nigerian youth have recently left the country for Canada in search of better jobs and educations. A recent report claims about 6,000 Nigerians were admitted into Canada in 2018 alone. For these Nigerians, traveling means selling nearly all their property and belongings and then converting the proceeds into forex before traveling. This piles pressure on our forex reserves.
Business services – The most outflows appear to have come from the business services segment with over $4 billion net in the second quarter of 2019 alone and $7.7 billion net in the first two quarters of the year. Most of these outflows are spent on paying technical services fees, professional fees and others required to power nearly all sectors of the economy.
Businesses across the economy rely on foreign services such as software, consulting and auditing, patents etc to power and scale businesses. These payments are tracked and approved by the National Ofice for Technical Acquisition and Promotion. A recent Notap report indicates it has saved Nigeria about N240 billion in savings which may have been paid out as capital flight.
What this means: As Nigerians continue to enjoy a seemingly stable exchange rate that has not lasted well over two years, watchers of indicators such as current account deficit believe the negative trend is a major bellwether for another round of devaluation.
- If Nigeria continues to experience current account deficits then foreign investors could ratchet up calls for an imminent devaluation.
- As such, the government will have to hope that oil prices remain high while it continues to explore other export generation sectors of the country.
- Oil remains dominant as Nigerian businesses haven’t been able to attract significant sales induced forex inflows.
- However, we continue to rely heavily on services to power the economy while also still spending billions on imports physical goods. The report reveals about net $5.6 billion have been spent importing goods.
