Nigeria: Enhancing Flow of Diaspora Remittances

UNCTAD’s Economic Development in Africa Report 2020 says stopping illicit capital flight could almost cut in half the annual financing gap of U.S.$200 billion that the continent faces to achieve the Sustainable Development Goals (file photo).
23 December 2020

Obinna Chima writes on the new measures aimed to boost flow of remittances sent home by Nigerians in the Diaspora

Remittances are perceived as one of the key benefits that migration bring to originating countries.

According to the United Nations Conference on Trade and Development (UNCTAD), remittances are private flows of resources mostly intended for direct consumption and household support.

In fact, a report by UNCTAD titled: "Maximising the Development Impact of Remittances," stated that there is solid evidence that remittances can and have assisted many developing countries and least developed countries (LDCs) in maintaining balance of payment (BOP) stability, ensuring the availability of hard currency, improving countries' credit worthiness for external borrowing and increasing internal aggregated demand.

Also, it pointed out that during crisis, remittances have proven to be more reliable and sustained flows than other sources of external financing such as foreign direct investment, public debt or official development assistance.

"The potential of remittances does not end there. Remittances are seen today under a totally different light as they can become a solid resource base for leveraging human development, financial inclusion, and investment in a productive capacity.

"Evidence shows that a significant amount of remittance transfers to developing countries are spent on household consumption.

"A share of these expenditures is directed towards the construction of homes, healthcare and education, thereby generating local employment in these critical service sectors," it added.

To highlight the importance of Diaspora remittances, for Nigeria, the World Bank had predicted that inflow from Diaspora remittance will hit $21.7 billion this year, as against the $23.8 billion the country recorded in 2019.

The World Bank had hinged the drop in remittances from Nigerians living abroad on an account of the double whammy of the COVID-19 pandemic and the attendant economic crisis that has continued to spread.

It stated: "Remittances are helping to address the impact on African households. Nigeria remains the largest recipient of remittances in the region and is the seventh largest recipient among LMICs, with projected remittances to decline to around $21.7 billion, a more than $2 billion drop compared with 2019."

Therefore, given the increasing importance of Diaspora remittances, the Central Bank of Nigeria (CBN) recently unveiled a new policy that grants unfettered access to foreign exchange (FX) from Diaspora and other money transfer remittances.

Enhancing Receipt of Diaspora Remittances

The new CBN policy allows beneficiaries of Diaspora remittances through International Money Transfer Operators (IMTOs) to henceforth receive such inflows in the original foreign currency through the designated bank of their choice. The regulation was part of efforts to liberalise, simplify and improve the receipt and administration of Diaspora remittances into Nigeria.

The central bank announced the new policy in a circular signed by its Director, Trade and Exchange Department, Dr. Ozoemena Nnaji.

With the new policy, recipients of remittances may have the option of receiving such funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.

"These changes are necessary to deepen the foreign exchange market, provide more liquidity and create more transparency in the administration of Diaspora remittances into Nigeria," the apex bank stated.

It explained that the changes would help finance a future stream of investment opportunities for Nigerians in the Diaspora, while also guaranteeing that the recipients of remittances would receive a market- reflective exchange rate for their inflows.

Owing to the new policy, the CBN recently directed all banks to close all naira ledger accounts opened for receiving IMTOs' proceeds.

CBN Governor, Mr. Godwin Emefiele, explained that the new policy would help in providing a more convenient channel for Nigerians in the Diaspora to remit funds to the country as well as ensure that the funds can contribute to the development of the economy.

According to him, the apex bank's policy to allow for unfettered access to foreign exchange from the Diaspora and other money transfer remittances is to support improved remittance inflows into the country through official channels.

Emefiele said the current annual remittance inflow of about $24 billion could help in improving the balance of payment position, reduce dependence on external borrowing and mitigate the impact of COVID-19 on forex inflows into the country.

He, however, said following up on the implementation of the new forex and Diaspora remittance policies, the CBN observed some pushback by some of the IMTOs, which he said were bent on continuing their nefarious activities of undermining the new policy by attempting to resist it.

According to him, following the announcement of the new policy measures, the apex bank, in an effort to enable smooth implementation had engaged with the commercial banks and the International Money Transfer Operators to ensure recipients of remittance inflows are able to receive their funds in the designated foreign currency of their choice.

According to him, data on IMTO inflows into the country over the past year, and through central bank's investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira-dollar exchange rate.

This, he said, to a large extent resulted in a significant drop in flows into the country. It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining foreign exchange management framework, he said.

He explained: "This was the reason the CBN had to insist on Wednesday, December 2, 2020, that all DMBs must close all naira general ledgers through which the naira remittances were hitherto being carried out.

"It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining our foreign exchange management framework."

He added that the new policies will be a major game-changer in remittance inflows into the country.

Emefiele said: "As a matter of fact, from the data that we have, the way the size of remittance is computed by the International Monetary Fund (IMF) takes into consideration, not just the money that comes in directly as flows but also what we call the earnings of Nigerians in Diaspora in different parts of the world - because they believe and we believe as well that some portion of these monies actually flow back home to support members of their families.

"But it is important for me to draw a parallel. I am aware from data available that for instance, Pakistan even in the midst of COVID-19 receives $2 billion monthly from Pakistanis in Diaspora. This is a country that I will say by geography, demography is about the same with Nigeria.

"So we are hereby saying that if Nigeria is even able to receive even if it's just $1 billion monthly or $2 billion monthly, I am certain that you all know what will happen to the exchange rate of Nigeria."

He said he was certain that after some time, deposit money banks will not have any need to call on the central bank to provide dollar to fund their imports or commercial operations.

Emefiele also dispelled concerns that the new policies could support money laundering, adding that the institutions involved in money transfer have good reputation as well as a robust customer identification system in the country.

He said the CBN would ensure that most of those who would be receiving Diaspora remittances come with some forms of identity card.

He stated that the measures would help finance a future stream of investment opportunities for Nigerians in the Diaspora while also guaranteeing that recipients of remittances will receive a market-reflective exchange rate for their inflows.

Analysts' Position

Analysts have commended the new CBN policy regime in diaspora remittances describing it as a welcome development.

Speaking with THISDAY on the development, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng said, "Prior to now, diaspora remittances to Nigerians were being received in naira at official rates and IMTOs were gaining from hoarding and speculation of the FX thereby inflating the parallel market."

But he said the new regulation will help drive more liquidity into the FX market and reduce the influence of some of the IMTOs and banks in manipulating the space.

Also, former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, described the initiative as a welcome development, explaining that the new policy will address forex scarcity going forward.

He said: "When the CBN restricted cash access to remitted currencies from abroad, they did that to forestall money laundering especially for funds hidden in foreign accounts.

"Secondly, they tried to reduce speculations and arbitraging in the FX market. Thirdly, there may have been scarcity of the foreign currency, so the restriction was to reduce pressure on the demand for same."

He said: "The unfettered access regime therefore has come to remedy the scarcity of foreign currencies. People who have funds abroad can now have confidence to remit their funds to Nigeria and will be guaranteed access to their funds.

"Before now, such inflows could only be transferred as outflow and not as cash withdrawal. This is therefore a welcome development."

Also, the Senior Economist/Head of Research and Strategy, Greenwich Merchant Bank Limited, Mr. Ayodeji Ebo, described the new policy as a positive move, saying it will help divert remittances back to the official channels.

According to him, the difference in forex rates has always been a disincentive.

"I think it will also increase dollar liquidity in the banks as people would now be more comfortable to channel these funds through the banks. So, it is a step in the positive direction," he stated.

Head of Research at Agusto & Co, Mr. Jimi Ogbobine, explained that the policy would help boost dollar liquidity in the economy and ease forex pressure in the parallel market.

"So, before now if you receive your money from an international money transfer operator, they would give you naira pegged at around N390 to a dollar. If you walk out of that bank where you had collected that money, if it was dollar you received, you would have changed that money at a prevailing parallel market rate.

"So, because of the difference, you would find a way to cut off the official channel and start receiving the money through informal channels, instead of through the banks.

And when you receive the money, you go to the parallel market to get the maximum rate.

"What the central bank would achieve with this policy is to reduce the pressure and cut off the arbitrage with more retail investors being able to access their dollars through the right channels. We are going to see a possible increase in supply in the parallel market, which would ultimately moderate forex rates, especially as we go into the yuletide season when we are going to have many Nigerians in the Diaspora coming back home," Ogbobine explained.

Also, Head of Research at United Capital, Mr. Wale Olusi, said the policy is "going to ease the pressure in the parallel market.

"This is a short-term policy that if sustained will be beneficial to the market in the long run. Remittances in Nigeria yearly are over $20 billion. Remittances can roughly take about 40 per cent of the demand for import.

"Those can actually, to a large extent, save the central bank a lot of headaches if we are able to cement the structure around remittances. So, I think it is a brilliant move," he said.

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