The rise of emigrants as Nigeria’s single largest export and the subsequent dethronement of crude oil is hardly a subject of economic discourse in Nigeria, and that is a risk to effective policy making and could cause poverty levels to worsen.
For decades, crude oil reigned supreme as Nigeria’s largest export, bringing in billions of dollars year after year to dwarf other main sources of dollars from foreign portfolio and direct investment to diaspora remittances.
It therefore made sense for policy makers and other stakeholders to examine the Nigerian economy through the lens of crude oil.
However, despite diaspora remittances surpassing oil receipts every year since 2015 to become the largest source of dollar inflows to Nigeria, oil remains in the spotlight in place of Abuja’s newly crowned biggest export- emigrants.
According to data provided by the Central Bank, diaspora remittances- cash sent back home by Nigerian emigrants- first outpaced oil revenue in 2015, as the $21.2 billion sent home officially by Nigerians abroad surpassed the $19.6 billion oil export proceeds for those twelve months.
In the years through a recession-tainted 2016 and 2017 as well as last year, the trend continued.
In 2016 and 2017, Nigerians abroad sent home $19.7 billion and $22 billion respectively, which was higher than the $10.4 billion and $13.4 billion garnered from oil exports in the same period.
The CBN’s annual economic reports show that in 2018 the total revenue from oil was $18 billion, while Nigerian emigrants sent home some $25.1 billion, the highest in four years according to data collated by BusinessDay.
While oil revenue has tanked some 57 percent from the $42.7 billion recorded in 2014 when oil prices were as high as $100 per barrel, diaspora remittances grew 20.6 percent from $20.8 billion in 2014.
The surge in diaspora remittances is not only down to the increasing number of Nigerian emigrants, who according to official numbers have more than quadrupled under four years to 15 million, but is also because the Nigerian Diaspora is doing incredibly well.
Nigerian Americans already earn more than the average American, something international observers deem an incredible accomplishment for such a new immigrant group.
The cash these mostly bright Nigerian emigrants send back home could even be closer to $40 billion per annum when unofficial channels are brought to bear, according to estimates by the Tunis-based African Development Bank, headed by another bright Nigerian, Akinwunmi Adesina.
That amount ($40bn) is nearly twice the official number in 2018 and more than three times the dollars the government has received from oil each year since 2015.
The figure is also about 10 percent of Gross Domestic Product (GDP), underlying the impact of diaspora inflows on the economy. But that impact is rarely discussed.
Diaspora remittances has gone so unnoticed that it is rarely mentioned in debates about how to boost the Nigerian economy and isn’t even worthy of a footnote in key policy documents from the annual budget to the Economic Recovery and Growth Plan.
Yet, economists say if Nigeria didn’t have this massive flow of remittances, the economy would probably collapse. Diaspora inflows have largely mirrored the state of the economy. When remittances fell to under $20 billion for the only time in 5 years, the economy slumped into recession.
Official flows had dipped due to the capital controls put in place by the CBN to manage a dollar shortage that arose from the slump in oil prices. The CBN’s dollar management meant that it would maintain a hard artificial peg that was around 30 percent weaker than the black market rate. It also meant the recipients of Diaspora remittances that came into the country through official channels were shortchanged as local banks only gave the naira equivalent of the dollars at a rate much weaker than was obtainable on the streets.
In order to get more naira for the dollars they were sending home, Nigerians in the Disapora started finding ways to route their cash home through unofficial channels, this causing a slump in official flows.
One International Money Transfer Operator (MTO) executive who is not authorised to speak publicly told BusinessDay that unofficial diaspora remittances were rife at the time and that record sums were transacted. He said unofficial volumes are still currently higher than what the official records show as some Nigerians remain desperate to avoid any unpalatable experience where they are forced to give up their dollars at uncompetitive rates.
“They still feel the sour taste of the capital controls in 2016 and fear the CBN could return to the practice in future without notice,” the person said on condition of anonymity.
Official remittances picked up a year later, after the CBN shelved crushing capital controls. The economy responded by exiting recession.
This is not to say the slump in oil prices and oil production didn’t play a big role in the economic dip, but to underscore the growing influence of diaspora inflows on the Nigerian economy.
“The only thing holding up the economy is the Diaspora; if we didn’t have this massive flow of remittances, I am pretty sure the economy would collapse,” said Andrew Nevin, the chief economist at consulting firm, Price Waterhouse Coopers (PwC).
According to Nevin, it is confusing that the massive flow of remittances and the fact that oil is no longer the country’s biggest export is not discussed often.
“What is confusing to me is why this is not discussed more, official figures keep repeating that oil is our biggest export when it is not true.
“We have a flow of almost $40 billion that is not discussed much, very difficult for me to understand how someone can claim to be analyzing the Nigerian economy when they don’t look at the biggest item,” Nevin said at a news conference in Glasgow.
“We of course can question whether this is helping us overall from an economic view as we lose people, but obviously people with skills are saying their skills cannot be monetized here,” Nevin added.
The massive diaspora inflows into Nigeria creates two parallel FX universes- one where the FX starts with the government, and another where the FX starts with millions of individuals, which Nevin said could be the reason why not much attention is paid to diaspora remittances.
The Diaspora flow goes directly into the hands of millions of Nigerians family who use it for healthcare, education, housing, and even feeding.
“One unmistakable conclusion from this is that Nigeria needs a powerful Diaspora strategy, one that maximizes the benefit Nigeria receives from the remarkable Diaspora,” Nevin concluded.
A strong diaspora strategy would boost the economy, create jobs and reduce poverty. India’s strong diaspora strategy was useful in reducing poverty and passing the unenviable crown of the world’s poverty capital to Nigeria.
Nigeria is the sixth largest recipient of diaspora remittances in the world. Every country on the top 10 list boast a strong diaspora strategy. Even Smaller African countries from Ghana to Kenya that received less than $3 billion in remittances last year, slightly over 10 percent of what Nigeria got in the same year, have diaspora strategies.
It remains to be seen if Nigeria will harness the potential of its diaspora base with remittances to Africa tipped to double in five years, as mobile money increasingly becomes an attractive channel to send remittances, due to its low cost, convenience and privacy.
Remittances to low- and middle-income countries reached a record high in 2018, according to the World Bank’s latest Migration and Development Brief.
The Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached $529 billion in 2018, an increase of 9.6 percent over the previous record high of $483 billion in 2017.
Global remittances, which include flows to high-income countries, reached $689 billion in 2018, up from $633 billion in 2017.
Regionally, growth in remittance inflows ranged from almost 7 percent in East Asia and the Pacific to 12 percent in South Asia.
The overall increase was driven by a stronger economy and employment situation in the United States and a rebound in outward flows from some Gulf Cooperation Council (GCC) countries and the Russian Federation.
Excluding China, remittances to low- and middle-income countries ($462 billion) were significantly larger than foreign direct investment flows in 2018 ($344 billion).
Among countries, the top remittance recipients were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion).
In 2019, remittance flows to low- and middle-income countries are expected to reach $550 billion, to become their largest source of external financing.
The global average cost of sending $200 remained high, at around 7 percent in the first quarter of 2019, according to the World Bank’s Remittance Prices Worldwide database.
Reducing remittance costs to 3 percent by 2030 is a global target under Sustainable Development Goal (SDG) 10.7. Remittance costs across many African corridors and small islands in the Pacific remain above 10 percent.
Banks were the most expensive remittance channels, charging an average fee of 11 percent in the first quarter of 2019. Post offices were the next most expensive, at over 7 percent. Remittance fees tend to include a premium where national post offices have an exclusive partnership with a money transfer operator. This premium was on average 1.5 percent worldwide and as high as 4 percent in some countries in the last quarter of 2018.
LOLADE AKINMURELE
