Godwin Emefiele, CBN Governor

By FELIX OLOYEDE

The liberalization of diaspora foreign exchange remittances in the country will help strengthen the Naira, economic experts have said.

Since the Central Bank of Nigeria (CBN) on Wednesday, December 2, 2020, announced a new remittance policy, which was aimed at boosting inflow into the country, the Naira has firmed up 5% to N575/$ on Friday, having been at N500/$ the previous week.

The new policy allows recipients of diaspora remittances to receive dollar across the counter or through their domiciliary accounts, instead of the Naira equivalent they were given in the past.

The new diaspora remittances policy will encourage more people to send more into the country and ramp up forex inflow into Nigeria, Ayodele Akinwunwi, Relationship Manager, FSDH Merchant, told BusinessHallmark.

He noted that the appreciation of the Naira at the unofficial market since the CBN liberalized diaspora remittance, was an indication the policy was a move in the right direction.

“There are different sources of foreign exchange inflows into the country. This is one of them. We need multiple sources to strengthen the value of the Naira, to encourage the stock supply of foreign exchange into the Nigerian market.

“If you allow only one source to dominate, it is not a sustainable model at the long-run. As this is going on, we also need complementary sources of forex in terms of trade- that will stimulate exports so that we can earn dollars. We also need policies that will make Nigeria a destination for foreign direct investments. We need domestic policies that will make the Nigerian financial market attractive that foreign portfolio investors will be willing to put their money,” Akinwunmi further explained.

He encouraged transparency in the country that will spur international donors to give grants and aids, thereby increasing Dollar inflows into Nigeria.

Professor Olawale Ajai, Faculty Member, Lagos Business School, declared that the new diaspora remittance policy was already having a positive impact on the value of the Naira.

“It has helped in increasing autonomous inflows into the country and this is checking the activities of those who are hoarding dollar and speculating against the Naira,” he added.

 Prof Ajai noted that the apex bank was also taking advantage of increased diaspora remittance which usually comes into the country in December.

He wondered why the CBN placed restrictions on diaspora remittance in the first place, arguing that it encouraged forex hoarding and speculation.

The regulator had devalued the local currency at the official market on different occasions this year, weakening it from N305/$ to N360/$ and later to N380/$.

It traded N379/$ at the official window and depreciated by 0.67% to N395/$ at the Investors’ & Exporters’ (I&E) forex window on Friday.

Diaspora remittances in the country dropped by more than 40% to $337.3 billion Q2 2020 from 562.9billion in Q1 2020.

The CBN had accused International Money Transfer Operators (IMTO) of diverting the country’s remittances, thereby aggravating the scarcity of Dollar in the country.

“Based on this premise, we analyzed data on IMTO inflows into the country over the past year, and through our 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, which to a large extent resulted in significant drop inflows into the country. It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittances flows meant for Nigeria, thereby undermining our Foreign Exchange management framework,” Mr Godwin Emefiele, CBN Governor, explained last week.

Meanwhile, Aminu Gwadabe, President, Association of Bureau de Change Operators of Nigeria (ABCON), argued that the liberalization of diaspora remittances receipt will hurt forex speculators and hoarders.

“Such recipients of remittances may have the option of the receiving these funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account,” the circular signed by Dr O.S. Nnaji, CBN’s Director of Trade and Exchange Department, read.

The ABCON President advised Dollar hoarders to sell now or they will have to lick their wounds.

“The monopoly is broken and induced liquidity in the BDCs subsector,” Gwadabe asserted.

However, KayodeOmoregie, Faculty in Finance and Strategy at the Lagos Business School, believes that with Nigeria’s current macroeconomic realities and fundamentals, it makes sense to devalue and absorb this shock within a narrow timeline to ease speculation, volatility and uncertainty with the exchange rate, which is worse for business in the short-term for businesses and FDI/FPI investments.

The country has been susceptible to perennial forex shocks due to overreliance on crude oil which is highly volatile for its forex earnings.

Crude oil supplies over 90% of Nigeria total external earnings, but contributed only 8.73% of its Gross Domestic Production (GDP) in the third quarter of this year.