By Amechi Ogbonna
As the largest recipient of remittances in sub- Saharan Africa and indeed the seventh largest among low and middle-income countries (LMICs), Nigeria has every reason to fret whenever things are going the wrong direction.
With massive job losses and huge paycuts that accompanied the COVID-19 pandemic, Nigeria’s monetary and fiscal authorities were indeed concerned that diaspora remittances into the country had taken a hit over the last twelve months and needed to take necessary measures to prop up inflows from Nigerian citizens across the world.
But while for some observers, it was needful to do that much considering the contribution of diaspora remittances towards national development and wellbeing of families prior to the pandemic, others saw the attempt to incentivise diaspora nremittances into the country as an unnecessary advocacy by the Central Bank of Nigeria.
However, for the Federal Government and indeed the Central Bank of Nigeria (CBN), incentivising the process of sending money to loved ones in times of acute foreign exchange scarcity could indeed be a stimulus to encouraging more inflows of foreign currencies.
But in launching the Dollar 4 Naira policy, the CBN Governor, Mr. Godwin Emefiele, said the objective was to help increase diaspora remittances into the country to lift the economy and help reduce the impact of COVID-19 pandemic on the citizenry.
According to him, inflows of about $10 billion to $15 billion, would significantly impact the economy amidst prevailing fiscal constraints.
To achieve this target, the apex bank had directed that all diaspora remittances would now go through deposit money banks as against the use of mortgage or fintech institutions.
The CBN governor said: “Since I became the CBN governor, I have been hearing about the size of diaspora remittances; some say $20 billion, in fact some say it’s about $30 billion. Honestly, I have been looking for the $30 billion or $20 billion, I have not seen it.”
But this time I have decided that I will focus to see those billions of dollars. You know what, I am not only expecting $20 billion, if we get even up to $10 to 15 billion, I can tell you it will help the Nigerian economy.
“Pakistan, Indonesia and others generate average of $2 billion monthly in diaspora remittances and this has helped to reduce the impact of COVID-19 on their economies.”
Against this backdrop, the CBN in its guideline to allow unfettered access to forex from the Diaspora and other money transfer remittances to beneficiaries, through International Money Transfer Operators (IMTOs) to henceforth receive such inflows in the original foreign currency through designated banks of their choice.
The bank had explained that the new regulation was part of efforts to liberalise, simplify and improve the receipt and administration of Diaspora remittances into Nigeria.
Speaking at a recent webinar organised by Fidelity Bank Plc, entitled, “The New FX Policy, Implications and Positive Impact on Diaspora Investments”, the CBN Governor, Godwin Emefiele, explained that the new policy was expected to attract diaspora remittances through the official foreign exchange channels as well as support forex stability in Nigeria.
He said, “Our policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
In addition, we believe that this new policy measure will encourage banks and financial institutions to develop products and investment vehicles geared towards attracting investments from Nigerians in the diaspora. We have no doubt that these changes can help to finance a future stream of investment opportunities for Nigerians living abroad.”
No sooner than the introduction, agency reports indicated that the CBN received $40 million in March from remittances, up from about $6 million before the policy was introduced. Furthermore, there had been a noticeable increase in Nigeria’s external reserves, which rose by 1.19 percent to $34.82 billion as at March 31, 2021 compared to $34.41 billion as of March 18, 2021, according to the data obtained from the apex bank’s website.
Naira 4 Dollar Scheme as game changer
Perhaps one of the strategic policy options that seem to have made the most impact on Diasopora remittances inflow through the right channels was the “CBN Naira 4 Dollar Scheme.”
It is an initiative that aims at incentivising senders and recipients of international money transfers that promptly got the buy in of commercial banks in the country.
In a circular dated March 5, 2021, and signed by A.S. Jibrin, on behalf of the Director, Trade and Exchange Department, the CBN said it would be paying N5 for every dollar remitted into the country March 8 to May 8, 2021.
According to Emefiele, average cost of sending $200 worth of remittance to Nigeria from the US at about 4.7 per cent, can further be reduced if the channels of transmission can be liberalised further through the CBN plan to incentivise the process with the involvement of commercial banks.
So far, the policy option appears to be a win win paradigm for both the nation’s financial system, the Diasporan community and recipients of remittances.
For instance, since the flag off of the policy, data from the FMDQ show that Nigeria’s currency has strengthened in value by 0.72 percent to N408 per dollar as at March 31, 2021 from N411 as of March 8, 2021, being the commencement date for the naira for dollar scheme.
Before then, it was observed that foreign exchange inflows into the Investors and Exporters (I&E) forex window dropped to six months low following significant decline 99.6 percent in interventions by the CBN, the dominant player in the market.
Data from the FMDQ captured in a report by FSDH Research show that total foreign exchange inflow into the window decreased by 39.48 percent to $565.9 million in February 2021 compared to $935.2 million in September 2020.
The inflows comprised of Foreign Direct Investment (FDI), which fell to $7.5 million in February 2021 from $30.8 million in September 2020, Foreign Portfolio Investment (FPI) $17.9 million in February 2021 ($36.8m in September 2020), other corporate $9.3 million in February 2021 ($22.4m in September 2020), and the CBN $2.9 million in February 2021 ($434.5m in September 2020).
So it can be argued that with the Naira for Dollar initiative there has been noticeable increase in Nigeria’s external reserves, which rose by 1.19 percent to $34.82 billion as at March 31, 2021 compared to $34.41 billion as of March 18, 2021, according to the data obtained from the CBN’S website.
This was as the foreign exchange market turnover increased by 15.27 percent Week-on-week to close the week at$35.55 million a fortnight ago from $30.84 million recorded at the first day of the week.
But amid the favorable indications of the policy outcomes, some commentators said it was not yet uhuru, citing data constraints.
Commenting on the impact of the policy, Andrew Nevin, Chief economist, PWC, said “It’s difficult to exactly pinpoint the impact of something like this now, but I think everybody including the CBN understands the technicality of diaspora remittances into the Nigerian economy. I think the World Bank says that one or two people are somehow attached to their families in Nigeria.
What is important is financial inflow. The scheme will probably be just a start for managing and encouraging the diaspora remittances, and to make sure they use the official channel. I expect the policy will in the coming months really encourage the diasporans to continue to support Nigeria not just returning money for the support of their families and friends for basic needs in terms of basic needs like education, health care, food, housing. But I also want some impact in more structural ways to have diasporans fund, that they can trust to move socio-economic growth, because we know that the diasporans want to contribute in many ways not just to families and friends. A trust fund has to be put together for them to do this, the CBN can do that and this programme is important for a start.”
Also reacting, Mr Chidi Ajaegbu, CEO, Heritage Capital Markets Ltd, stated that without figures, it would be difficult to make a substantive comment or give information, so we need CBN to release figures of the impact of the scheme before we can comment on such.
For me, the policy is funny, I don’t know anywhere else in the world where people are paying money to receive money in hard currency. It does not add up. To know how far the scheme has gone, we need figures from the CBN.” He said
For his part, President, phamaceutical Society of Nigeria (PSN), Mazi Sam Ohuabunwa, said,
“For me being in the market place, I cant feel the impact of the scheme given the continuous flow of bad news coming from Nigeria on the worsening insecurity situation. I believe the naira for dollar scheme is not what promotes or can increase inflow of foreign exchange. It’s just for people who have parents or dependants at home. If it comes to investment capital or money to grow or start business l will be surprise if much could have changed from the feelers from the market place.
People are more worried about the worsening insecurity, kidnapping , killing everyday. People can’t just wake up and start making investments both locally and foreign, probably the investment going on now is arms trade. Illegal arms trade and official arms trade. Government is buying ammunition and state actors are smuggling and buying from the grey market.
These are things bothering people, they don’t promote investment at all. The CBN should release figures and let us know the impact of the scheme, which ordinarily if the environment was friendly and supportive it would have yielded more positive results.
Meanwhile , amid recent reports that the Naira 4 dollar scheme is beginning to yield positive results, some economic analysts say they are in the dark as to how it is impacting the Nigerian economy.
According to them, there is need for accurate data to assess the impact of the scheme after its introduction.
Speaking to Daily Sun, they said it would be difficult to link the increase in Nigeria’s external reserves to the Naira 4 dollar due to lack of data. Head, Retail Investment at Chapel Hill Denham, Ayodeji Ebo, said, “I think the accretion to the external reserves may be linked more to improvement in oil prices than diaspora remittances and even with what is being said about remittances, there is obviously no data for me to even research as to what impact the scheme has created since its introduction”
Another market operator, who pleaded anonymity, also argued that the improvement in external reserve was a function of many factors and not just diaspora remittances which in many respects only increase dollar supply and reduce the need for intervention on the supply side by the CBN.