Data from the Central Bank of Nigeria reveals that Nigeria has a cumulative current account deficit of $9.1 billion as of the third quarter of 2019, stoking fears of an impending exchange rate crisis in 2020.
A current account deficit occurs when a country’s foreign liabilities exceed its foreign assets. It is exacerbated when the country imports more than it exports. Nigeria has reported a negative current account balance in 8 quarters out of the 16 quarters reported under this government. The figures are stated net because the inflows are set off against outflows, thus a negative balance deficit.
Based on the data, Nigeria’s balance of payment stood at a whopping $4 billion as at the third quarter of 2019 up from $48.7 million dollars in the preceding quarter and $4.5 billion in the third quarter of 2018.
Nairametrics first reported the ballooning current account deficit in an article in September, as the country posted a current account deficit of $3.7 billion in the second quarter of 2019. It had posted a deficit of $2.6 billion in the first quarter of 2019. The latest data shows that the current account deficit was $2.79 billion (provisional figure as it may change) in the third quarter of 2019, indicating that Nigeria may close the year with a deficit. The last time Nigeria closed the year with a current account deficit was in 2015, with about $15.4 billion.
Services drive deficit – As reported in our article in September, Nigeria’s thirst for foreign-related services has remained high, despite efforts by the government to diversify away from reliance on imports. Services ate up $9.56 billion (inflows $1.1 billion) in total dollar liabilities during the quarter compared to $9.4 billion and $9.5 billion respectively in the first and second quarters of 2019 respectively.
Business services-related payments again topped demand for forex during the quarter, with about $3.9 billion in the third quarter. Business and personal travel followed with $3.4 billion, as ticket sales and travel allowances drive up demand.
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.
Personal travel dominated demand with about $2.9 billion, with education-related travel accounting for a whopping $1.5 billion in the third quarter of 2019 ($1.4 billion in Q2).
Forex Income: In terms of income, Nigeria continues to rely on crude oil for its dollar earnings, with oil exports making up $13.7 billion in inflows out of the $15 billion earned in the quarter. Nigeria has so far earned about $46.6 billion from total exports in 2019 compared to $46.4 billion in the corresponding quarters in 2018. We, however, observed growth in non-oil dollar inflows recording a total of $4.8 billion in the first three quarters of 2019 compared to $3.6 billion in the comparative period in 2018.
What this means: We do not expect the CBN to continue to carry on with a negative current account deficit, considering its ramification on the external reserves. Nigeria’s currency reserves have been on a constant decline, dropping below $40 billion in November. For Nigeria to mitigate against the rising current account deficit, it will have to either increase its export proceeds or cut down on demand for dollars.
Looking at the data, it appears that cutting dollar demand might be the next logical strategy that the CBN might adopt. We envisage another curb on how much Nigerians are allowed to spend on foreign travel, just as it did in 2015/2016 when we last hit an exchange rate crisis.
If the government targets personal travel allowances, then it might face potential backlash from Nigerians who need to pay the school fees of their wards or fund their medical tourism needs. Should the CBN decide to leave personal travel allowances, then it could target business services expenses. The CBN has often targeted this sector by delaying foreign-related payment of fees for services rendered to Nigerian companies.
Another option available to the CBN could be to devalue the currency, making it more expensive for Nigerian businesses to demand forex, and forcing them to rely more on local services.
LPG: Nigerians paid more to refill 12.5kg gas cylinders in December
Nigerians paid more money to refill their 12.5Kg gas cylinder in December than they did in November 2020.
The average price for refilling 12.5kg cylinder of liquefied petroleum gas (LPG) increased by 1.75% in December compared to the month of November, according to the NBS report for December 2020.
The average cost of refilling the 12.5kg gas cylinder moved from N4,082.97 in November to N4,154.28 in December 2020.
According to the NBS report, the average price for refilling a 5kg cylinder of cooking gas increased by 0.12% month-on-month to N1,949.75 in December 2020 from N1,947.47 in November 2020.
- Bauchi (N2,489.12), Borno (N2,396.69) and Adamawa (N2,392.88) recorded the highest average price for the refilling of a 5kg cylinder for Liquefied Petroleum Gas in the month of December 2020.
- Enugu (N1,563.75), Imo (N1,678.89) and Oyo (N1,691.67) recorded the lowest average price for the refilling of a 5kg cylinder for Liquefied Petroleum Gas.
- Delta (N4,838.46), Cross River/Sokoto (N4,800.00) and Akwa Ibom (N4,614.49) recorded the highest average price for the refilling of a 12.5kg cylinder for Liquefied Petroleum Gas.
- While, Kaduna (N3,191.67), Zamfara (N3,462.50) and Niger (N3,500.00) recorded the lowest average price for the refilling of a 12.5kg cylinder for Liquefied Petroleum Gas.
LPG is fast becoming an alternative to firewood and kerosene as a means of cooking for most homes especially in urban areas in Nigeria. LPG is cleaner and more efficient than kerosene in cooking.
COVID-19: FG to launch Rapid Response Register for urban poor
The FG has moved to inaugurate an emergency intervention database for the poor residing in urban centres and affected by the pandemic.
The Federal Government has announced that it would inaugurate a COVID-19 Rapid Response Register (RRR), which would be a health emergency response for the poor living in urban centers that have been affected by the pandemic.
This was disclosed by Mr. Joe Abuku, Communications Manager, National Social Safety Nets Coordinating Office (NASSCO), on Sunday in Abuja.
Mr. Abuku said the register would identify Nigerians that have been made poorer due to the pandemic, targeting mainly Traders and SME Owners.
He added that the scheme was designed by the Ministry of Humanitarian Affairs, Disaster Management, and Social Development, through NASSCO, in partnership with the World Bank, and will be inaugurated by Vice President Yemi Osinbajo, on Tuesday, at Transcorp Hilton, Abuja.
What Joe Abuku is saying
- “This register is being built by NASSCO as an expansion of the existing National Social Safety Nets Project (NASSP). It targets small business owners, street vendors, petty traders, Small and Medium Enterprises (SMEs), and service providers.
- “Others are low wage employed individuals and families, including daily wage-based laborers, urban poor and destitute (persons with disabilities), and vulnerable families in slum areas, affected by the pandemic.
- “The category of Nigerians who will be in this register is typically the urban/semi-urban poor engaged in the informal sectors of the economy, who lost their source of livelihood due to the impact of COVID-19 on businesses and jobs. The Federal Government plans to extend cash transfers to households in this register for a period of 12 months.”
He also stated that NASSCO would use geographical satellite sensing to locale the wards where the urban poor live, as the targeting of the poor would be done via cell phone Short Messaging Service (SMS) technology that allows residents of targeted communities register to be assisted by following simple steps using USSD codes.
The SMS approach would be integrated through data gathered by the National Living Standard Survey Assessments and would be complemented by existing databases of Non-Governmental Organisations and local self-help-support groups.
- “Mobile phone numbers of those deemed eligible for assistance will be linked to digitized bank accounts to receive cash support, under an expanded cash transfer program of the Federal Government. These cash payments are designed to boost consumption for these households, build their resilience, and in some cases, inject fresh capital into small businesses.”
What you should know
- Nairametrics reported last year that the World Bank said the outbreak of the coronavirus pandemic could make an additional 5 million Nigerians poor.
- The Poverty and Shared Prosperity Report 2020 by the World Bank Group indicate that between 88 million and 115 million people could fall back into extreme poverty as a result of the COVID-19 pandemic.
- This is in addition to an increase between 23 million and 35 million in 2021, potentially bringing the total number of new people living in extreme poverty to between 110 million and 150 million.
Covid-19: Nigeria needs serious controls not a second lockdown – House Committee on Education
A member of the lower legislative house has advised the government to focus on serious control measures to help prevent the spread of COVID-19.
Professor Julius Ihonvbere, Chairman, House Committee on Basic Education & Services, said the Federal and States governments should not impose a lockdown, but rather focus on serious control measures to help prevent the spread of the coronavirus.
He disclosed this during an interview with Channels TV on Sunday evening.
- “I do not think we need a national lockdown now, I think what we need now is the first instance is serious controls. Let me say that the Governor of Lagos is the ‘poster man’ for the fight against covid-19. If we see you outside without a mask, we will arrest you and charge you to court, that is the kind of courage we need.”
He cited serious controls like buying hand sanitizers and washing materials to schools and urban areas in Lagos as part of the controls that should be commended.
- “The issue is not a lockdown. If you lock people down, and you are not doing the right thing inside the lockdown, the cases will still increase. They (masses) will break it and will challenge it as they did during the first lockdown. So, the real issue is to bring out the policies and implement them.
- “The Federal Ministry as a supervisor, yes states have the autonomy, but we give the state’s money from UBEC every year, we give them billions, what are they doing with it?
He urged that the FG should investigate what States use their Universal Basic Education Funds for, as Nigeria is in a time for “retooling and repurpose” and UBEC funding should be utilized in the fight against Covid-19.
What you should know
- Nairametrics reported last week that the Federal Government said Nigeria is not contemplating another lockdown and urged Nigerians to ignore social media posts circulating the possibility of another lockdown.