By Charles Abuede
- Analysts, World Bank sound positive notes
- CBN stance in 2021 into 2022 to be major driver
- Regulations, remittance costs downside risks
From across the Atlantic in faraway Washington, United States of America, the voice of the World Bank rang out last week with the cheery news. Before it did, in-country, Agusto & Co, Nigeria’s leading credit rating agency, had gone to town to sing from a similar hymn book, the good news that Nigeria is to see a positive uptick in Diaspora remittances, this year and the year after. Diaspora remittances are one of the avenues the country has in recent times banked on to raise much needed foreign exchange to get its economy going again, shortly before and now, during the pandemic.
But there is a caveat to all the sweet songs coming from the World Bank and Agusto & Co. Much will depend on the Central Bank of Nigeria (CBN), which has had its hands on every pie in nearly seven years of the governorship of Godwin Emefiele, the developmentalist central banker, and how it drives its policies. Only recently, it chose to offer some sweeteners, named “Naira for Dollar Scheme”, in which recipients of Diaspora dollars are paid N5 for every dollar they receive. Many call it the sweepstake or tombola central banking but this policy has been extended and the jury is still out to see how much it rakes.
In its report, Agusto Consulting, projects that the total diaspora remittances into Nigeria will hit $22 billion by 2021, indicating a marginal year-on-year rise of 5 per cent; and that it is expected to climb 2 per cent to $22.5 billion over the next twelve months. These projected increases in diaspora remittances will be largely driven by the rise in the emigration of white-collar jobs to migrant-host countries, as well as the policy stance on diaspora remittances through the International Money Transfer Operators (IMTOs) by Nigeria’s central bank through 2021 and into 2022.
The negative impact of the global health crisis has given several economies no further options on the routes to follow in the drive to economic sustainability, as well as perking up their exports and managing imports, in a move to improve the rate of remittances inflow and the balance of payments (BoPs). But, as projected by the World Bank in the early days of the Covid-19 pandemic, there was a 20 per cent annual fall in remittances to emerging markets such as Nigeria and frontier states. However, what has become the outturn has clearly been worse than initially envisaged for Nigeria’s economy.
On the other hand, the international lender, in a recent report on ‘Defying predictions, remittance flows remain strong during the Covid-19 crises’, stated that, “Despite COVID-19, remittance flows remained resilient in 2020, registering a smaller decline than was previously projected. Officially, recorded remittance flows to low- and middle-income countries reached $540 billion in 2020, just 1.6 per cent below the 2019 total of $548 billion.”
It further highlighted that remittances inflow into Nigeria, which declined by 27.7 per cent, almost led to the estimated 12.5 per cent decline in inflows into the sub-Saharan Africa region in 2020 to $42 billion. Conversely, it was an increase by 2.3 per cent into the region, excluding Nigeria, which accounted for about 40 per cent of the total fall.
Dilip Ratha, the lead author of the report on migration and remittances and head of KNOMAD, said: “The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support. They can no longer be treated as small change. The World Bank has been monitoring migration and remittance flows for nearly two decades, and we are working with governments and partners to produce timely data and make remittance flows even more productive.”
Recently, Nigeria’s central bank in a move aimed at improving FX liquidity, announced the continuation of its Naira 4 Dollar scheme till further notice; directing commercial banks and International Money Transfer Operators (IMTO) to pay diaspora remittance recipients funds in foreign currency. Positively, analysts have pointed that this directive will help to improve the supply of dollars to the parallel market and also to reduce the pressure on the naira. Interestingly, the CBN governor had earlier before now, announced that its regulatory changes, which was the new option for beneficiaries to take their incoming payments from licensed international money transfer operators in the foreign exchange market, have given a boost to remittances.
While it is worthy of note from the foregoing that the continuation of the CBN’s policy on diaspora remittances may encourage a marginal increase in inflows into the economy, economic experts expect remittances to remain weak as Nigerians abroad continue to adjust to the post-COVID environment, implying a bleak outlook for the Nigerian naira. In the same vein, experts expressed that they expect a further devaluation to levels closer to the general consensus of the true value of the naira, which is projected to trigger further increases in foreign portfolio inflows into the country.
On a comparative lens with Nigerian counterparts, the remittance inflow figure was about 9 per cent ahead of the 2019 figures in Kenya, between January and October of the pandemic year, while there has been robust growth in remittances in Pakistan and most of all, Bangladesh, where these country’s apex bank pays out a small bonus on conversions into the country’s local currency. According to the World Bank, the growth of remittances was reported at 37 per cent in Zambia, 16 per cent in Mozambique, 9 per cent in Kenya, 5 per cent in Ghana. Expectedly, by the international lender, remittance inflows into the sub-Saharan Africa region will rise by 2.6 per cent in 2021 and will be largely supported by improving prospects for growth in high-income countries.
A comparative view of the situation shows that the estimated migrant remittances of $78.3 billion in 2020 stand at a modest 12 per cent of the global migrant remittances for Africa. Though, two states (Egypt and Nigeria) within the continent accounts for a third ($24.38 billion) and a quarter ($20.97 billion) of the continent’s entire migrant remittances in 2020 respectively, with Nigeria recording the worst contractions of about 11.9 per cent amongst Africa’s top 7 states in 2020.
From data obtained from the Central Bank of Nigeria (CBN) data vault, Business A.M. has come to understand that there was a -27.1 per cent year on year slump to $4.35 billion in net current transfers in the balance of payments during the third quarter of 2020; and yet this rose by 11.6 per cent quarter on quarter in the same review period, a year earlier. Also, there was a -33 per cent year on year decline and 14.8 per cent quarter on quarter rise in the total workers’ remittances which account for about ninety per cent of the net transfers in the balance of payments (BoP) in the year 2020. A critical point to note from the above CBN data, according to economic experts, is that the quarter on quarter improvement in the net transfer is probably a result of the low point in the COVID-19 cycle for those countries where Nigerians in the diaspora are of high concentration.
On the other hand, it is very possible that the Nigerian diaspora has a particularly large presence in those economies with the largest hits of the pandemic such as the Eurozone and the UK; while a similar factor, in experts’ views, may have been the exchange rate regime which shows that that recipients of remittances were not getting the full value of their transfer in the local currency. This has, nevertheless, prompted the apex bank to direct deposit money banks to pay recipients in foreign currency.
Emefiele, the CBN governor, in his comments on the continuation of the Naira 4 dollar scheme as part of efforts to sustain the positive inflows of diaspora remittances into the country, stated that the scheme is also aimed at reducing the cost of remittance inflow, providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria. In a similar vein, the World Bank, in its recent report stated that on the cost of remittance, it remains so expensive to send money across the sub-Saharan region, as it costs an average of $17 to send money to the region in the final three months of 2020.
“Sub-Saharan Africa remains the most expensive region to send money to, where sending $200 costs an average of 8.2 per cent in the fourth quarter of 2020. Within the region, which experiences high intra-regional migration, it is expensive to send money from South Africa to Botswana (19.6 per cent), Zimbabwe (14 per cent), and Malawi (16 per cent).”
As Agusto Consulting put it in its report, the pandemic has brought about significant global economic ruptures that have affected the rich world and the remittance dependent states. But, due to crude oil volatility, the diaspora remittances which have long been Nigeria’s second-largest source of foreign exchange inflows have become more significant. However, as highlighted by the report, significant upsides that could bring about favourable outcomes of rising remittances flows in 2021 include the Central Bank’s decision to enable recipients of remittances to access funds in foreign currency; the fiscal stimulus packages aimed at protecting wages and consumer spending in some of the major western nations such as the United Kingdom and the United States; currency depreciation in Nigeria; and the increasing rate of emigration by well-educated Nigerians, particularly white-collar workers to Canada.
Conclusively, Nigeria’s domestic policy conundrum on foreign exchange may be creating as many challenges to the wider macro contractions caused by the pandemic.
