The Central Bank of Nigeria’s ‘Naira-for-Dollar’ policy may increase the country’s foreign remittances to $34.89bn by 2023.
Forecast by PricewaterhouseCoopers, one of the big four accounting firms, had suggested that Nigeria’s remittance flows could reach $34.89bn by 2023 if the policies were right.
PwC in the forecast noted that the growth in remittances is subject to global economic forces, which could spur or hinder growth of remittance flows, growth in emigration, economic conditions of residing countries and poor economic fundamentals in the Nigerian economy.
The forecast revealed that as of 2017, the highest remittance came from the United States, followed by the United Kingdom, Cameroon, Italy, Ghana, Spain, Germany, Benin Republic, Ireland and Canada.
It added, “Several countries across the globe, including Nigeria, have developed plans towards attracting investment from their diaspora community for national development. Essentially, the extent to which the diaspora contributes to the developmental affairs of a country will be determined largely by trust.
“In summary, what is required is a coherent policy framework to harness remittances into generating capital for productive investments for the growth and development of small and micro-enterprises, which will in turn, create employment. In addition, remittances can be deployed toward philanthropic activities, which can serve as solutions for specific deficiencies in the local infrastructure such as schools, hospitals and roads.”
Nigeria’s Diaspora remittance in 2019 was put at $21bn by the World Bank. Even though the forecast showed that the remittance would have risen to $27.66bn in 2020, experts believe the projection couldn’t have been met due to the impact of the COVID-19 pandemic.
The CBN, which introduced a rebate of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organisations in its new forex policy, shared PwC’s forecast via its verified Tweeter handle on Saturday, saying increased remittances ‘can only be accomplished if the remittance infrastructure improves and if the right policies are put in place.’
As part of its reforms to boost the inflow of foreign currency in the country, the CBN on Saturday introduced an incentive of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organisations in its new forex policy.
The Central Bank Governor, Godwin Emefiele, disclosed this during a virtual event organised by Fidelity Bank at its inaugural webinar on the impact of the new forex policy on diaspora investments.
Emefiele said this new policy would take effect on March 8.
He said, “Furthermore, in an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the diaspora, the Central Bank of Nigeria has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the Central Bank.
“This rebate will be provided to the bank accounts of beneficiaries, following receipt of remittance inflows.
“We believe this new measure will help to make the process of sending remittance through formal bank channels cheaper and more convenient for “Nigerians in the diaspora. This new policy is expected to take effect on the 8th of March 2021.”
According to him, efforts at driving remittance inflows into Nigeria would yield positive results as it continued to ensure formal banking channels offer cheaper, faster and more convenient ways for remitters to send funds to beneficiaries.
He added, “Today, the World Bank data shows that Nigeria, with a total flow of $21bn, was the seventh largest recipient of remittances in 2019.
“This is behind India, China, and even Egypt. Though official remittance flows declined in 2020 due largely to the undermining impact of the Covid-19 pandemic, it maintained its dominance over FDI inflows.”
Emefiele had earlier disclosed that remittances improved from a weekly average of about $5m to over $30m per week through its forex initiatives.
The CBN governor said reducing the cost of sending remittances was a significant way to boost remittance inflows to Nigeria.
In general, he said, the new policy was expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilisng the exchange rate and supporting accretion to external reserves.
More importantly, it would provide an opportunity for Nigerians living abroad to make investments in their home country, he noted.
Emefiele said, “Yet, the introduction of the new policy presented new challenges as operators and remittance service providers were initially unable to integrate with the commercial banks.
“The CBN continues to work assiduously to resolve the few intermittent interface challenges that are remaining.”
He said it was brokering meetings between the IMTOs and banks in order to ensure that they had a smooth transition and the diaspora community had a more convenient way to remit funds to Nigeria.
Explaining further, the CBN, on its verified Tweeter handle said, “The use of reimbursements of remittance fees has been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic.
“Consistent with the global trend, Nigeria aspires to ensure that remittances flows and diaspora investment becomes a significant source of external financing.
“Policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
“PwC forecasts suggest that Nigeria’s remittance flows could reach US$34.89bn by 2023. But this can only be accomplished if the remittance infrastructure improves and if the right policies are put in place.”
Reacting, a former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, said this latest move would encourage people to patronise government licensed money transfer operators as opposed to the agents that could not be easily monitored.
It would also ensure that more forex was remitted into the country, he noted.
He said, “Nigeria does not even know how the economy is surviving; the economy is surviving through all these informal operators, those doing informal transfers.
“A lot of money is coming from abroad but going through the government licensed operators is cumbersome. They should make it easy through the licensed operators.”
Nzekwe added, “It will help to boost remittances. All hands must be on deck to ensure we harness foreign currencies into the country.”
A professor of economics at the Olabisi Onabanjo University, Sheriffdeen Tella, said, “It wont have any major impact on Diaspora remittances.
“The first thing is that the amount (N5) is too small to attract those living abroad to start sending money home. Don’t forget that these people also have their plans.
“Secondly, it may not be able to save the naira from the current slide. The reason is that production is picking up now and most of production needs foreign inputs. So, people will spend dollars to do more imports. Also, we have not been able tackle illicit financial flows.”
Similarly, the Chairman of Foundation for Economic Research and Training, Prof Akpan Ekpo, said the new scheme introduced by the CBN was aimed at tackling dollar scarcity in the country by encouraging the inflow of the greenback.
Ekpo, a former director-general of the West African Institute for Financial and Economic Management, said, “I think it is just to encourage the inflow of dollars so that they can reduce the amount of naira needed to buy the dollar. Now, the naira has depreciated officially to 410/$1; it is about 480/$1 in the black market. That gap is still wide; so, the CBN is trying to narrow the gap.
“The only way we can boost forex supply is to diversify the economy – build a complex industrial economy where we earn forex outside of oil. That is the only way we can boost forex supply, not the way we are going.”
But he said while the impact of the CBN policy on the Nigerian economy would be marginal, it would not save the naira from sliding down further.
Ekpo explained, “That is the idea – to see whether they can stop the depreciation. Whether that will happen, I don’t think that will happen in the short term. The impact on the economy will be very marginal. The idea is that they want to bring in more dollars because if you stabilise the exchange rate, you will restore confidence in the economy and hopefully, if you restore confidence, you might encourage an inflow of foreign direct investment. That’s the whole idea.”
On the impact of the rebate on annual diaspora remittance, he said the inflow had been increasing as Nigeria has one of the largest in Africa.
He said, “We don’t know (whether the new policy will increase diaspora remittance); let’s see what happens before six months because the only way you can increase dollar supply is for the country to produce and export non-oil (commodities), not just crude oil only. If it’s crude oil alone, we are earning a lot of revenue from oil, but still we have a problem with the dollar.
“So, the only way is to be an economy that produces and exports non-oil to earn foreign currency, meaning that the economy has to be diversified to do that.”
An economist and Senior Lecturer, Lagos Business School, Dr Bongo Adi, applauded the central bank for the policy, noting that it could leapfrog the economy.
He said this was part of the innovations and proactive incentives that was expected from the bank and cited India as an example of a country that leveraged diaspora remittances to transform her economy and escape the poverty trap.
He said, “Diaspora remittances are at the heart of Nigeria’s economy. We can leverage our huge constellation of Nigerians spread all over the world. If we give them incentives they will bring back their talents and capital back to the country.
“Many Nigerians are high earners so when they begin to remit some of their capital back home, that is all Nigeria needs to transform.
So any incentive that could get them to get more of those funds down here is of course a welcome development.”
The Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said the ‘CBN Naira 4 Dollar Scheme’ would increase the annual diaspora remittance and save the naira from its current slide.
He, however, added that the apex bank should allow exporters free access to their export proceeds.
He said, “The CBN deserves to be commended for this policy. It is a laudable move to encourage forex inflows and ease the current liquidity challenges in the forex market. This would surely have a positive impact on inflows and ultimately on the exchange rate.
“But the CBN should go a step further by allowing exporters unfettered access to their export proceeds, whether in foreign exchange or naira. The current practice of imposing the NAFEX rate on export proceeds should be discontinued in the spirit of the current move to incentivise forex inflows.
“Similarly, Foreign Direct Investments and Foreign Portfolio Investments should be allowed greater flexibility in conversion rates of their inflows. A combination of these strategies would have a remarkable impact on foreign reserves, forex liquidity and the naira exchange rate.”
Also, a businessman, Mr Jimoh Ibrahim, described the policy as one that had the capacity to boost the value of naira against the dollar, given that there would be an increase in remittances from the diaspora.
He said, “The Central Bank will get more remittances from abroad and that would increase the foreign exchange that can strengthen the naira. The demand for foreign exchange is high and the Central Bank needs to meet the demand. So, this is also an alternative way of sourcing for an exchange.”
He however pointed out that there should be other ways of encouraging Nigerians abroad to remit forex, noting that the N5 incentive could only be significant when the volume is high.
He added, “I think the CBN can still achieve this by ensuring that remittances are done timely and speedily. That means if I remit money, I can get it very quickly. If the bottlenecks and bureaucracies are reduced, the N5 incentive would not be necessary and you would still attract a high volume of forex.
“The CBN should also avoid (asking certain) questions because the agencies there have done a lot of checks.”
Also, the Director-General, the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture, Ambassador Ayo Olukanni, said the CBN must have taken the decision to harness the huge potential of foreign remittances.
He said if well implemented, the policy might boost foreign exchange and reduce the pressure on naira.
He added, “Properly implemented, I think it may have a positive impact on our modest exit from recession, boost our foreign exchange input and hopefully result in reduction of pressure on the naira.
“However, we are of the view that other areas which deserve attention in the quest to increase forex inflow is our non-oil export, which has yet to be fully tapped due to reasons we all know. We hope to see appropriate incentives to boost foreign exchange by scaling up our non-oil exports as we grapple with what should be done to ensure inflow of forex and shore up the naira.”