BY EMEKA EJERE
Nigeria’s foreign exchange crisis resulting from decline in earnings from crude oil sales is being compounded by decreasing diaspora remittances flow into the country despite efforts of the Central Bank of Nigeria (CBN) to reverse the trend.
The decline in remittance flows is attributed to a combination of factors, all driven by the COVID-19-induced economic crisis in major destination countries, including EU countries, the United States, China, and GCC countries.
The development is conspiring with depletion of Nigeria’s foreign reserves to see the naira face an intense pressure that has left it struggling both at the official and unofficial windows of the foreign exchange market.
On Thursday, dollar supply at the official forex market dipped by 42.2% to stand at $123.69 million. This is even as Nigeria’s external reserves fell by $100 million in three days, from June 26 to June 28, as the figures continued to witness historic depletion.
According to data posted on the FMDQ Security Exchange where forex is officially traded, naira appreciated marginally against the US dollar at the Investors and Exporters window on Thursday to close at N411.2/$1 from N411.22/$1 recorded on Wednesday, 14th July 2021.
The same was experienced at that black market, as the local currency maintained an exchange rate of N505/$1 same as maintained since Friday, 9th July 2021, data posted on abokiFX.com, a website that collates parallel market rates in Lagos, showed.
Remittances generally refer to funds transferred by migrants to their home country. The IMF says they represent “household income from foreign countries arising mainly from the temporary or permanent movement of people to those economies.”
Diaspora remittance is the second major source of foreign exchange for the country after crude. According to PwC, Nigeria is the 10th largest recipient in the world, the second largest in Africa after Egypt and accounts for 40 per cent of inflows into sub-Saharan Africa. Also, the $25 billion Nigeria received in 2018 was 83 percent of the national budget, 11 times the foreign direct investment for that year and 6.1 percent of GDP.
However, in apparent reflection of the severe impact of the COVID-19 pandemic on the incomes of Nigerians living abroad, diaspora remittances inflow into the country fell 27 percent, year-on-year, (YoY) to $17.2 billion in 2020 from $23.55 billion, representing 18.2 percentage points below the 8.8 percent decline projected by the World Bank for both Nigeria and the Sub-Saharan African.
In a report titled, “Migration and Development Brief 33”, issued in October, the World Bank had projected that remittances inflow into Sub-Sahara Africa would fall to $44 billion in 2020 from $48 billion in 2019. It also projected that remittance inflow into Nigeria would fall to $21.7 billion in 2020 from $23.8 billion in 2019.
The World Bank said: “Remittances to Sub-Sahara Africa are expected to decrease significantly by around 8.8 percent between 2019 and 2020, from $48 billion to $44 billion due to the COVID-19 pandemic, restrictions in movement, and their devastating impacts on the global economy.
“Nigeria remains the largest recipient of remittances in the region, and is the seventh-largest recipient among low and middle-income countries (LMICs), with projected remittances to decline to around $21.7 billion, a more than $2 billion drop compared with 2019.”
However, the 27 percent decline in remittances into Nigeria in 2020 implies that the negative impact of the pandemic on the economic fortunes of Nigerians in diaspora is more severe than expected.
Data from the CBN showed that remittance inflow fell, YoY, in both halves of the year. In the first half of 2020 (H1’2020), remittance inflow fell by 23.7 per cent, YoY, from $11.82 billion in H1’2019. The trend worsened in H2’2020 with remittance inflow falling by 30 percent, YoY, to $8.2 billion from $11.73 billion in H2’2019.
Further analysis, however, showed an upward trend in remittances in the Q3’2020 and Q4’2020. After suffering quarter-on-quarter (qoq) decline of 5.3 percent to $5.64 billion in Q1’2020, and 40 percent decline to $3.38 billion in Q2’2020, remittances inflow revived and rose qoq by 15 percent to $3.89 billion in Q3’2020 and further by 10.6 percent to $4.31 billion in Q4’2020.
Prospects for 3021
The World Bank projected further decline in remittances inflow for Nigeria and other countries in the Sub Saharan region in 2021 but stressed the need for government measures to address the downward trend.
It stated: “This declining trend is expected to continue in 2021, when remittances are projected to decrease by around 5.8 percent to reach $41 billion (in Sub Saharan Africa).
“For countries where remittances account for a large share of GDP, a sharp decline in remittance inflows is expected for 2020 and 2021, as many migrant workers have seen their income plummet, especially in OECD countries.
“Governments efforts to facilitate remittance inflows in these economies would be needed in addition to more efforts to support household remittance recipients who will be facing a significant decline in remittances.”
CBN to the rescue
Apparently in response to this recommendation and following the growing pressure on the naira last year, the apex bank retooled the regulatory framework with a focus on “improving remittance inflows into Nigeria.” Accordingly the CBN in December 2020, introduced a policy that allows beneficiaries of diaspora remittance to be paid in foreign currency.
In a meeting with IMTOs and deposit money banks (DMBs), the CBN governor, Godwin Emefiele, stressed: “Diaspora remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows in foreign currency through the designated bank of their choice.
“Such recipients of remittances may have the option of receiving these funds in foreign currency cash (U.S. dollars) or into their ordinary domiciliary accounts. 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.”
Emefiele expressed the regulator’s frustration with IMTOs who he accused of profiteering from the arbitrage at the expense of encouraging the growth of the market. Their activities, he said, were driving more people to the informal channels.
This was supported with another policy announced in March, tagged Naira4dollar scheme, which involves the CBN paying diaspora Nigerians N5 rebate for every $1 remittance sent through licensed IMTOs.
Speaking at a diaspora webinar organised by Fidelity Bank, where he announced the Naira4dollar scheme, Emefiele said: “We believe our efforts at driving remittance inflows into Nigeria would yield positive results as we strive to ensure formal banking channels offer cheaper, faster and more convenient ways for remitters to send funds to beneficiaries.
“Reducing the cost of sending remittances is a significant way to boost remittance inflows to Nigeria. In general, the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilizing the exchange rate and supporting accretion to external reserves.
He disclosed that weekly remittance inflow had increased to $30 million from $5 million, following measures introduced in December, saying “more importantly, it will provide an opportunity for Nigerians living abroad to make investments in their home country.”
In their reaction, analysts at FBNQuest Merchant Bank opined that the downward trend in remittances inflow into Nigeria in 2020 will be reversed in 2021.
Citing the upward trend in Q3’2020 and Q4’2020 as well as recent measures introduced by the CBN to boost remittances inflow into the country as basis for their optimism, they said: “The q/q improvement is probably due to the fact that the low point in the COVID cycle for those G7 economies where the Nigerian diaspora is concentrated was the previous (second) quarter of 2020.
“Theories as to Nigeria’s relative underperformance abound. It could be that the Nigerian diaspora has a particularly large presence in those economies that have taken the largest hits from the virus (the Eurozone and the UK). The exchange-rate regime (i.e. the sense that the recipient was not getting ‘full value’ in naira) may have been another factor.
“Looking ahead, we would expect a recovery in remittances as the G7 economies rebound.”
Meanwhile, African rating agency, Agusto & Co, has made a forecast of $22 billion inflow from diaspora remittances into Nigeria this year. In its ‘2021 Nigeria Diaspora Remittance Report & Survey’, the agency projected a five percent rise in remittances in 2021 and by a further two percent in 2022, relying on the need for the federal and state governments and the CBN to devise and harmonise policies to raise this income source and direct more of it into investment.
However, speaking at the 64th Annual General Meeting of Nigeria Employers’ Consultative Association (NECA) held in Lagos on Thursday, president of NECA, Mr. Taiwo Adeniyi, lamented the continuous slide in value of the naira.
Adeniyi said: ‘’The falling reserves could leave the country’s embattled economic outlook worse off as the confidence of foreign investors is partly influenced by the size of its reserve. At the height of the COVID-19 pandemic, the figure oscillated between $34 billion and $36 billion and even crossed $36.5 billion occasionally.
On its part, president of the Nigeria Labour Congress, Ayuba Wabba, said: “The current high inflation is bad for businesses and country’s development. It’s sad, Nigeria’s currency no longer has value.
‘’For instance, since 2015 till date, our currency has lost its value more than 150 per cent when you compare it with our neighbouring countries such as Ghana, Togo and Benin Republic. In 2015, one million CFA was equivalent to N250,000 but today, one million CFA is equivalent to N 1 million.