Why Nigeria’s balance of payment is worrisome, by FSDH research

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Photo by Florian PLAUCHEUR / AFP

Nigeria may have recorded a surplus of $2.8 million in its balance of payment (BoP) in the fourth quarter (Q4) of 2018, but the net inflow of money into the nation’s economy is a reflection of fragility, and oil and gas transactions’ dominance, a research by FSDH Merchant Bank Limited has noted.

The development, which clearly shows that the economy is not only vulnerable to movements in the oil and gas market, but remain hugely dependent on it despite claims of diversification, is also exposed to other external shocks associated with oil earnings, like exchange rates and reserves’ accretion.

Besides, the weak BoP position buttresses ongoing calls for urgency in creating multiple sources of revenue and foreign exchange earnings for Nigeria.

A country’s BoP, just like the financial accounts of individuals and businesses, could be in a surplus or in deficit, but with surplus, it means that the country receives more money from other countries than it pays out.

In Q4 2018, Nigeria, though 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, 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 increased 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.

For the Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, the need to improve the business environment to attract direct investment cannot be over-emphasised.

“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,” he said.

Source:https://samueljackson12.blogspot.com/2019/03/why-nigerias-balance-of-payment-is.html

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