CBN links naira crash to diaspora remittance diversion to black market

By Onome Amuge

The Central Bank of Nigeria (CBN) has attributed the free fall of the naira against the dollar and its resultant volatility in the foreign exchange market to the diversion of diaspora remittances to the parallel market. 

This is as the currency float implemented by the new administration in June continues to hit a brick wall amid a rapid devaluation of the naira which tumbled to an all-time low of N950 per dollar at the parallel market last week. The Nigerian currency also recorded a similar trajectory at the Investor and Exporter (I&E) window, trading around N782 per dollar, weighed by demand pressure and persistent forex scarcity.

Folashodun Shonubi, the CBN acting governor, faulted the influx of diaspora remittances which arrive in Nigeria in dollars and end up in the parallel market without any official documentation. 

In a recent lecture titled “Diaspora Remittances and Nigeria Economic Development”, at the National Institute for Security Studies in Abuja Shonubi said, “With those remittances, the dollars have come in, we know the dollars have come in but we don’t see them in the official system. So, they must be going somewhere and somewhere.”

He added that  the challenge with the  parallel market, also known as ‘black market’, is that it is not regulated, making it a haven for criminal activities.

Speaking further on the issue, the acting CBN governor  pointed out that some of the funding in the black markets are actually from diaspora remittances, noting that it is important a lot of investigations need to be implemented to know what’s going on there.

“We can’t play the sentiment game. If we don’t understand the dynamics, we usually go with the literature which does not necessarily work for us,” he added.

Shonubi lamented that management of the foreign exchange market and the efficacy of  policies to manage the exchange rate becomes difficult due to the insignificance of the diaspora remittances which are going to other markets.

He noted that it would be helpful if Nigeria puts measures in place to control illegal remittances and identify these channels to ensure remittance flows into the proper channels, and harness maximum benefits to grow the economy.

According to Shonubi, the amount of inflows coming through many unapproved channels and eventually ending up in the parallel market contributed significantly to Nigeria’s foreign exchange (FX) crisis.

The CBN chief admitted that diaspora remittances are indispensable to a country’s economy, adding that they serve as a main source of income for many countries.

To this end, he noted that implementing measures within the country to manage illicit remittances and detect these channels would be beneficial. This, he said, would ensure remittance flows into the proper channels, and harness maximum benefits to grow the economy.

Meanwhile, Agusto & Co, in a report titled, ‘Nigeria Diaspora Remittances: A Tale of Emigration, Policy and Technology’, faulted the implementation of capital controls and other unpopular policies by the Central Bank of Nigeria (CBN) for the restricted inflows of remittances  through official channels. 

The pan-African credit rating agency found that Nigeria’s emigrant base is currently placed  towards the economically productive middle-class demographic, which is positive for remittances. 

It, therefore,  projected that remittance flows into the largest economy in Africa  will hit $26 billion by 2025, a significant increase from the $21.9 billion the government reported through official channels in 2022. 

According to Agusto & Co, as  more Nigerians, discouraged by the country’s gloomy economic conditions, look overseas for the opportunity, their remittances will continue to play a crucial role in sustaining the Nigerian economy. 

“The growth of these funds has been exceptional, empowering dependents to meet their basic needs, pursue education, access healthcare, and embark on entrepreneurial endeavours,” it added.