Nigeria remains the largest recipient of remittances in Africa and the seventh largest recipient among low and middle-income countries (LMICs).
Recognising this, the Central Bank of Nigeria (CBN) has in recent times been designing policies to encourage further inflows of the foreign currencies.
CBN Governor, Mr. Godwin Emefiele, said reforms to increase diaspora remittances into the country will support the economy and help reduce the impact of the COVID-19 pandemic.
He said if the country could have inflows of about $10 billion to $15 billion, this could have significant effect on the economy amidst the current fiscal constraints.
The central bank has been insisting that all diaspora remittances must go through the deposit money banks rather than 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 can 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 economy.”
He also emphasised the need to introduce transparency in the administration of diaspora remittances.
Some other measures introduced recently included the granting of unfettered access to forex from Diaspora and other money transfer remittances. The policy allows beneficiaries of Diaspora remittances through International Money Transfer Operators (IMTOs) to henceforth receive such inflows in the original foreign currency through the designated bank of their choice.
The central 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.
Naira 4 Dollar Scheme
Also, in order to encourage Diasopora remittances inflow through the right channels, the central bank last month introduced the “CBN Naira 4 Dollar Scheme.”
It is an initiative aimed at incentivising senders and recipients of international money transfers.
Commercial banks in the country have since been implementing the initiative.
The CBN in a circular dated March 5, 2021, signed by A.S. Jibrin, on behalf of the Director, Trade and Exchange Department, stated that the initiative which became effective on March 8, 2021, would end on Saturday, May 8, 2021.
In line with this initiative, all recipients of diaspora remittances through CBN’s licensed International Money Transfer Operators (IMTOs) would be paid N5 for every $1 received as remittance inflow.
The apex bank had explained in the circular, “The CBN shall through commercial banks, pay to remittance recipients the incentive of N5 for every $1 remitted by sender and collected by the designated beneficiary.
“This incentive is to be paid to recipients whether they choose to collect the United States dollar as cash across the counter in a bank or transfer same into their domiciliary account. In effect, a typical recipient of diaspora remittances will at the point of collection, receive not only the USD sent from abroad, but also the additional N5 per USD received.”
Providing more insight into the new policy, Emefiele said it would offer Nigerians in the diaspora a convenient way to send remittances, adding that it would also aid diaspora investments.
He explained, “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.”
However, Emefiele said, “Yet, the introduction of the new policy presented new challenges, as operators and remittance service providers were initially unable to integrate with the agent banks.”
He said the central bank would continue to work to resolve the intermittent interface challenges in the market.
Emefiele disclosed that the average cost of sending $200 worth of remittance to Nigeria from the US was about 4.7 per cent, saying studies have shown that even a one per cent decrease in cost of sending remittance can result in a significant boost in inflow.
He added, “Countries in South Asia, such as Pakistan and Bangladesh, are aware of this impact and they introduced reimbursement schemes to support inflows.
“In Pakistan, the scheme, which is known as free send, has enabled record amount of inflows of over $2 billion a month even during the COVID-19 pandemic. Bangladesh introduced its own scheme in June 2019, which is a two per cent rebate on remittance inflows. Following this action, they have also seen a 20 per cent boost in remittance inflows.
“On the topic of round tripping, there is a maximum amount that you can remit through an IMTO. You can’t send a $100,000 through an IMTO. The CBN’s action, while it does not go far enough in offering total reimbursements, is a step in the right direction in reducing the cost burden for Nigerians remitting funds to Nigeria.”
Emefiele also disclosed that the central bank had been engaging the IMTOs and the banks to ensure more convenience in fund remittance.
He further highlighted the importance of diaspora inflows to the economy, saying the country would be in a position to reap its benefits if remittance infrastructure improves.
He explained, “Furthermore, in an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the Central Bank of Nigeria has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the central bank. This rebate will be provided to the bank accounts of beneficiaries, following receipt of remittance inflows.
“We believe this new measure will help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora. This new policy is expected to take effect on the 8th of March 2021.
“Accordingly, the CBN strives to constantly improve our remittance infrastructure, ease the process of international money transfer and simplify the experience for senders and recipients.”
Channel for Improving Inflows
Members of the organised private sector (OPS) and some analysts have hailed the Naira 4 Dollar Scheme. Also, Vice President, Prof. Yemi
Osinbajo believes the policy would aid more investment from Nigerians living abroad.
Osinbajo added, “We noticed that 70 per cent of remittances go into family support and only 30 per cent of the inflows go into investments and in that 30 per cent, a bulk of it goes into real-estate.
“But what Nigerians in the diaspora indicated would be useful for them is to undertake more investments into Nigeria in specific engagements that promote investment opportunities led by the private sector. From government, what they asked for was improvement in the enabling business environment.
“The effort of government in recent years has been on improving the business environment and initiatives, such as this, driven by the private sector, to attract investment from the diaspora is one of the key things they asked for
“We are delighted with the new CBN policy that makes it easier for diaspora Nigerians not just to transfer funds to Nigeria but to have greater control over the funds they transfer to Nigeria.
“And I know that when statistics would be released, we would see the material impact it would have had on the diaspora remittances from Nigerians to Nigeria.”
Also, the Executive Secretary/Chief Executive Officer, Nigerian Investment Promotion Commission (NIPC), Ms. Yewande Sadiku, noted that Nigerians in diaspora represent an indomitable force, describing them as flag bearers of Nigeria’s image, Nigeria entrepreneurial energy and Nigeria’s incredible can-do attitude.
“We realise the role of the diaspora and the potential that they represent.
“For several years, the remittances from Nigerians in diaspora exceeded Nigeria’s oil revenues, which translated sometimes as high as six per cent of GDP.
“We are interested in understanding exactly how to translate this potential to investments,” she added.
On his part, the President of Afreximbank, Dr. Benedict Oramah, suggested ways to boost diaspora participation in the Nigerian economy through specialised funds and accounts that would encourage them to save their long-term funds in Nigeria.
He said, “Africans and Nigerians can consider allowing special diaspora foreign currency accounts with higher interest rates than the US or Europe and with an inbuilt guarantee against potential losses from bank failures and country risks.
“Afreximbank would be happy to work with authorities to put in place a country risk guarantee that can be retailed to diasporans depositing money in such foreign currency account. We have done something similar in Zimbabwe.
“Secondly, designated commercial banks may be encouraged to implement diaspora targeted certificates of deposits that can be liquidated in local currencies or foreign currencies with built in incentives to encourage liquidation in local currencies.
“Thirdly, is a properly structured diaspora fund that can be issued with eligible bond holders encouraged to open coupon payment accounts locally in Nigeria to enable them cover local expenses and support their relatives at home.”
Oramah stated that by creating the requisite environment, diaspora remittances could become a catalytic force that would break the development barriers and rapidly transform the country and the continent.
In his contribution, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, described the initiative as a laudable move to encourage forex inflows into the economy and ease the current liquidity challenges in the country’s foreign exchange market.
Muda said: “This would surely have a positive impact on inflows and ultimately on the exchange rate. But the CBN should go a step further by allowing exporters unfettered access to their export proceeds, whether in foreign exchange or naira.
“The current practice of imposing the NAFEX rate on export proceeds should be discontinued in the spirit of the current move to provide an incentive for foreign exchange inflows.”
Similarly, the Director-General of the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, stated that the scheme would have a positive impact on Nigeria’s modest exit from recession, boost foreign exchange input and reduce the pressure on the naira.
Olukanni, however, called for the introduction of a similar scheme in order to attract proceeds from non-oil exports’ earnings.
He said: “We are of the view that other areas which deserve attention in the quest to increase forex inflow is our non-oil exports which are yet to be fully tapped due to reasons we all know.
“We hope to see appropriate incentives to boost foreign exchange by scaling up our non-oil exports as we grapple with what should be done to ensure the inflow of forex and also shore up the naira.”
Also, the Head of Research of the United Capital, Mr. Wale Olusi, said the scheme would discourage patronage of the parallel market and would be a game-changer in revamping the economy.
The Association of Bureau De Change Operators of Nigeria (ABCON) has expressed support for the scheme, saying it is capable of ensuring competition in the Diaspora remittance market.
