CRUDE oil has for decades been the mainstay of Nigeria’s economy. That is what the majority of Nigerians know. But only a few people are aware that Nigeria earns more dollars from diaspora remittances than it earns from crude oil sales. However, signals from the remittances market are no longer looking fabulous.
World Bank has predicted that the huge dollar inflows from Nigerians living abroad will drop by 20 per cent this year as senders face income crunch due to the Coronavirus pandemic.
The Nigeria National Petroleum Corporation (NNPC) inflow in 2019 was about $15 billion while migrant remittances stood at $25 billion, adding to the country’s Gross Domestic Product (GDP).
However, the World Bank’s prediction means there was a need to attract more remittances in the economy by increasing the channels through which the funds come in.
World Bank Group President David Malpass said remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies. He explained that remittances help families afford food, healthcare, and basic needs.
Malpass estimates that remittances to low and middle-income countries would recover and rise by 5.6 per cent to $470 billion. He said the global average cost of sending $200 remains high at 6.8 per cent in the first quarter of 2020, only slightly below the previous year. Sub-Saharan Africa continued to have the highest average cost, at about nine per cent, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region
Analysts said financial sector regulators could amend Bureau De Change (BDC) operators’ operational modalities to include receiving remittances.
Association of Bureaux De Change Operators of Nigeria (ABCON) President Aminu Gwadabe said diaspora remittances remain the backbone of Nigeria’s foreign exchange inflows and should be protected. He said protecting the remittances market will require policy shift including breaking the current monopoly that limits funds receipts to only ‘few lucky’ players at the detriment of the economy.
For him, now is the time to break the monopoly, which puts the remittances market in the hands of few players and deprives others from tapping into the goldmine. For him, there is an urgent need to get more players to join the remittance collection market including getting BDC operators approved for the business.
He said Bureaux De Change (BDCs) one of the channels through which Diaspora remittances enter the economy will give depth to the forex market and boost BDCs operations.
He insisted that for Nigeria to get the full value of what is due to her in the remittance market, BDCs have to be included in the remittances payment channels and allowed to receive funds from Nigerians in Diaspora. The BDCs are to perform this role through contactless and digitised channels to make collections easy and seamless.
“Now is the time for government and financial sector regulators to promote contactless payment channels, leveraging digitisation in the receipt of migrant remittances. The first win will be getting BDCs included in the payment channels to break monopolies of the fewer players, use of Simple Virtual Know Your Customer rule for beneficiaries and implementing supportive regulations,” Gwadabe said.
The ABCON boss also called for the establishment of training institutes to enhance capacity and infrastructure in the industry and broadening players’ business scope with cash-back incentives for those that patronize BDCs while also implementing less cumbersome and complex documentation requirements for end-users.
Gwadabe said the entry of BDCs into the remittance market will reduce such high cost of receiving money and deepen the job market.
Besides, 90 per cent of the total World Bank estimate of about $18 billion is trading outside the official window while a majority of the registered International Money Transfer Operators (IMTOs) patronise the informal market because of the higher margin and post-funding settlements method of the unlicensed agents.
Opportunities in Diaspora remittances
According to Gwadabe, there are over 1.24 million Nigerian Migrants abroad and 50 per cent of them live within the African neighbourhood, and the figure is expected to rise in the coming years.
The migrants’ cumulative remittances figures into the economy by the World Bank estimates indicated $22 billion in 2017, $23 billion in 2018 and $25 billion in 2019.
However, there is a huge differential between the Word Bank statistics and the local sources due to lack of data and operators indulgence in non-reporting and non-rendition practices to the official window.
Gwadabe listed the importance of migrant remittances to the economy to include serving as a lifeline for the recipient’s small household in the economy and used for health, nutrition, education and societal needs.
The remittances are also higher than both Foreign Direct Investment and foreign aids flow to the economy and still, are cheaper sources of funds.
He said that remittances can be used infrastructural developments as seen in India and Lebanon while in the UAE, the remittances are stable sources of liquidity in the market. The remittances, he added, can also serve as an excellent source of investment funds in the economy even as it represents 83 per cent of the Federal Government budget in 2018.
The remittances were 11 times higher than the FDIs in the same period and 7.4 per cent larger than 2017’s $3. 34 billion, the net official development assistance.
Still, some factors have been listed as responsible for the drop in migrants’ remittances to Nigeria. Gwadabe said, they include, limited payers in the cash out-cash, cash-in the industry, lack of capacity and infrastructures to receive the funds, uncompetitive forex rates, as well as competing fixed and parallel market rates. There have also been inhibitive regulatory policies, over-reliance in cash and complex distribution and handling nature of cash, activities of unlicensed operators and manual Know Your Customer (KYC) plans.
CBN’s Policy Direction
The CBN has, for years, implemented robust and friendly policies to deepen the players in the market and remains the first regulator in the world to ban exclusive contracts of the dominant players.
The CBN Management led by Godwin Emefiele remains proactive and is taking steps that promote more Diaspora remittances inflow into the economy.
Such move, he said, will address the dwindling outlook of the naira in the post-COVID-19 era and help in achieving the vision of making the local currency sovereign in the West African Market.
Also, the CBN forex policy has brought stability to the BDC industry and helped operators to embrace automation which is the standard best practice globally and adding the BDCs to one of the channels through which the Diaspora remittance funds come into the country will be a good way to reduce the reliance of rate differentials to sustain operators’ businesses.
BDCs are expected to continually support Nigeria’s growth agenda and CBN’s commitment to exchange rate stability. To continue to play these roles creditably, the BDC industry needs improved access to foreign exchange.
Emefiele has brought stability to the BDC industry and helped operators to embrace automation which is the standard best practice globally and adding the BDCs to one of the channels through which the Diaspora remittance funds come into the country will be a good way to reduce the reliance of rate differentials to sustain operators’ businesses.
Analysts said Nigerian BDCs, like their counterparts in other emerging or developing economies, have what it takes to deepen the forex market through remittances and collections.
“When that happens, it will not be the first time that BDCs were allowed to turn the remittances market around for good. In India, the BDCs generate over $30 billion from the Diaspora remittances. In the United Arab Emirates, the entire banking needs of banks are met by the BDCs. The working of the Lebanon economy is highly dependent on the activities of BDCs in that country. Therefore, Nigeria can also achieve higher revenue through BDCs given the opportunities we seen in the remittances market,” they said.
Besides, financial institutions’ long procedures, complicated forms, and history of poor service quality mean BDCs entry into the market will change the dynamic for good because they are not only simple in their operations but are closer to the people needing the remittance funds.
