Nigeria services sector deficit widens 58.8% on insurance debits

Nigeria’s services sector deficit has widened in the second quarter of 2021 by 58.84 percent on account of rising debits from insurance.

Data from FBNQuest shows that the deficit on services accounts widened from $2.94 billion in the first quarter of 2021 to $4.67 billion in the second quarter, a 58.84 percent increase.

Analysts at FBNQuest in the report stated that the widening was the consequence of record debits on insurance services of $1.71billion.

“The net outflow for the industry of $1.70 billion compares with little more than $10 million the previous quarter, the analysts noted, requiring a detailed explanation from the statistical authority.

The analyst however noted that by virtue of the size of the market and the very low penetration of insurance in Nigeria, the industry has attracted sizeable FDI from some of the leading global players, so they are wondering about the huge debit.

Some of the other debits on services barely moved in the second quarter including education and health-related spending, and business and personal travel were little changed from the first quarter and running at roughly half pre-Covid levels.

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“We have consistently pointed out that in time such spending will pick up as Nigerians make use of the several allowances available through the CBN.”

It hopes however that the services, and therefore the current account deficit will again expand, as the improvement is short-term.

It’s informed further that total credits on the services account in the second quarter according to the analysts dipped below $1bn to $880 million with transportation accounting for $510 million.

According to the analysts “Nigeria is without an industry that generates substantial services inflows, like their counterparts in the continent that thrives on tourism including Egypt, Kenya, Morocco, and others; while Mauritius is offshore financial services, Ethiopia is air transport.

Outside Africa, and looking further afield, we single out India for medical tourism and IT outsourcing, it noted.

“Nigeria’s get-out from a succession of current-account deficits stretch is not be delivered by services in a hurry, but best bet remains a dramatic improvement on the trading account, which means further gains in the oil price and the easing of output quota controls by OPEC+ as demand recovery continues under the sunniest forecasts for the global economy.”

“The second best would be a robust pick-up in workers remittance in response to CBN’s incentives such as the Naira 4 dollar scheme. There are tentative signs of a positive response in the Q2 data, FBNQuest noted.

The report said Nigeria posted a much-reduced deficit on the current account in the second quarter of 2021 and the first trade surplus since the third quarter of 2019.

The driver was an increase of 73 percent in oil and gas exports in the previous quarter on the back of a strong rise in the oil price and a modest uptick in output under the watchful eye of OPEC.