Nigeria’s Balance of Payment is an economic concept that refers to the systematic record of all economic transactions between Nigeria and the rest of the world during a given period. The balance of payments account is a statistical statement that summarizes all economic transactions between Nigeria and the rest of the world in a given period, typically a year. The balance of payments comprises two major components: the current account and the capital account. The current account includes all transactions related to trade in goods and services, income, and current transfers. The capital account includes all transactions related to capital flows, such as foreign investments, loans, and grants.
The balance of payments is a critical measure of a country’s economic health because it provides insight into a country’s competitiveness and overall economic performance in relation to other countries. In this blog post, we will explore Nigeria’s balance of payment, analyze its components, and discuss its implications for the country’s economic growth.
Overview of Nigeria’s Balance of Payment
Nigeria is a resource-rich country that is heavily reliant on its oil exports, which account for over 90% of its export earnings. The country’s balance of payments has historically been in deficit, reflecting the country’s high dependence on oil exports and its limited export diversification. Nigeria’s balance of payments deficits have been financed by foreign borrowing, which has led to the accumulation of significant external debt.
In recent years, Nigeria’s balance of payments has been characterized by persistent current account deficits, which have been offset by surpluses in the capital account. In 2020, Nigeria’s current account deficit stood at $14.3 billion, while the capital account surplus was $9.7 billion, resulting in an overall balance of payments deficit of $4.6 billion.
Components of Nigeria’s Balance of Payment
The current account
The current account is the sum of all transactions related to trade in goods and services, income, and current transfers. In Nigeria, the current account is dominated by the trade in goods, particularly crude oil exports. Nigeria is one of the largest oil exporters in the world, and oil exports account for over 90% of the country’s export earnings. The country’s non-oil exports, which include agricultural and mineral exports, are limited, accounting for only about 5% of the country’s total exports.
In addition to trade in goods, the current account also includes transactions related to trade in services, such as tourism, transportation, and financial services. Nigeria’s service sector is relatively small, accounting for only about 20% of the country’s GDP. The country’s service sector is dominated by financial services, followed by telecommunications and transportation.
The income component of the current account includes compensation of employees and investment income. In Nigeria, investment income, which includes dividends, interest, and profits earned on investments, accounts for the majority of the income component of the current account.
Finally, the current transfers component of the current account includes remittances from Nigerians living abroad, as well as foreign aid and grants.
The capital account
The capital account includes all transactions related to capital flows, such as foreign investments, loans, and grants. In Nigeria, the capital account is dominated by foreign investment, particularly foreign direct investment (FDI). FDI in Nigeria is primarily focused on the oil and gas sector, as well as the telecommunications sector.
The capital account also includes loans and grants received by the government, as well as other private-sector borrowing.
Implications of Nigeria’s Balance of Payment
Nigeria’s persistent current account deficits and reliance on oil exports have significant implications for the country’s economic growth and development. Nigeria’s high dependence on oil exports makes the country vulnerable to fluctuations in global oil prices, which can lead to significant macroeconomic instability.
The country’s limited export diversification also means that it is heavily reliant on imports
The country’s limited export diversification also means that it is heavily reliant on imports for many of its basic needs, including food and manufactured goods. This has led to a significant trade imbalance, with imports exceeding exports, and has put pressure on the country’s foreign exchange reserves.
Furthermore, Nigeria’s persistent current account deficits have led to a significant accumulation of external debt, which has implications for the country’s long-term economic growth and stability. The servicing of external debt places a significant burden on the country’s finances, reducing the amount of resources available for investment in key sectors, such as education and healthcare.
In conclusion, Nigeria’s balance of payments reflects the country’s high dependence on oil exports, limited export diversification, and persistent current account deficits. While the country has seen some improvement in its capital account in recent years, its overall balance of payments remains in deficit, with significant implications for the country’s long-term economic growth and stability. To address these challenges, Nigeria must diversify its exports, reduce its reliance on imports, and promote investment in key sectors that can drive sustainable economic growth and development.
NIGERIA’S BALANCE OF PAYMENT
Nigeria’s balance of payment and foreign reserves have not been stable since its independence in 1960. At one time, a surplus takes place, while at another period deficits occur and this has brought a lot of problems to the country.
During the oil boom of 1973 and 1974, for example, Nigeria had a favourable balance of payments position with a reasonable surplus of B1276.8 million and N3102.2 million respectively as a result of rises in oil prices. The period of oil boom did not last long for in 1978, the price of crude oil slumped as a result of the oil glut that took place in the international oil market.
The oil glut reversed Nigeria’s balance of payments to a deficit of N1,293.6 million. This period was followed by the balance of payments surplus between 1979 and 1980. The civilian administration which came in between 1981 and 1983 brought Nigeria’s balance of payment to a deficit. In an effort to control the balance of payments deficit, the government introduced several policies such as Economic Stabilization, and Structural Adjustment programme (SAP) with the Second-tier Foreign Exchange market (SFEM) as its subsidiary.
161. LIVER FLUKE
162. ECTO PARASITES
163. TICK
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mineral resources and the mining industries
Nigeria’s balance of payment and foreign reserves have not been stable since its independence in 1960. At one time, a surplus takes place, while at another period deficits occur and this has brought a lot of problems to the country.
During the oil boom of 1973 and 1974, for example, Nigeria had a favourable balance of payments position with a reasonable surplus of B1276.8 million and N3102.2 million respectively as a result of rises in oil prices. The period of oil boom did not last long for in 1978, the price of crude oil slumped as a result of the oil glut that took place in the international oil market.
The oil glut reversed Nigeria’s balance of payments to a deficit of N1,293.6 million. This period was followed by balance of payments surplus between 1979 and 1980. The civilian administration which came in between 1981 and 1983 brought Nigeria’s balance of payment to a deficit. In an effort to control the balance of payments deficit, the government introduced several policies such as Economic Stabilization, Structural Adjustment programme (SAP) with Second-tier Foreign Exchange market (SFEM) as its subsidiary.
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