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Accurate data key in assessing impact of CBN’S N5 for dollar scheme

One can possibly say the N5 for dollar scheme introduced a month ago by the Central Bank of Nigeria (CBN) is beginning to yield result, given the recent accretion in foreign exchange reserves and exchange rate appreciation.

However, there is need for accurate data to assess the impact of the scheme one month after introduction, analysts said.

An analysis of the data compiled by Businessday 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.

The Central Bank on March 6, 2021 announced a plan to pay N5 for every one dollar received by all recipients of diaspora remittances through its licensed International Money Transfer Operators (IMTOS).

The move tagged as ‘CBN Naira 4 dollar’ scheme is an incentive introduced by regulator to boost inflows of diaspora remittances into the country.

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).

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Others include inflows from exporters, which dropped to $175.7 million in February 2021 from ($206.8m in September 2020), individuals $2.5 million in February 2021 from ($29.4m in September 2020), and non-bank corporate, which declined to $175.5 million in February 2021 from $350.1 millionin September 2020.

Inflows from the CBN fell by 99.3 percent from $434.5 million in September 2020 to $2.9 million in February 2021.

Godwin Emefiele, governor of the CBN said at the last Monetary Policy Committee (MPC) meeting briefing that since January the CBN had not intervened in the I&E window.

In a circular dated March 5, 2021 and signed by A.s.jibrin for director trade and exchange department, the scheme takes effect from Monday, March 8, 2021, and ends on Saturday, May 8, 2021.

A month later, there has been noticeable increase in Nigeria’s external reserves, which have risen 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.

The foreign exchange market turnover increased by 15.27 percent Week-on-week to close the week at$35.55 million on Thursday last week from $30.84 million recorded at the first day of the week, data compiled by Businessday from the FMDQ indicated.

“Improvement in external reserve is a function of many factors not just diaspora remittances which in many respect only increase dollar supply and reduce the need for intervention on the supply side by the CBN,” Taiwo Oyedele, head of Tax and Corporate Advisory Services at PWC said.

Other factor such as the rising price of crude oil in the international market is also a contributory factor. “In essence, there is need for accurate data to determine the real impact of the Naira bonus for dollar policy,” he said.

Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said, “I think the accretion of the external reserves may be linked more to improvement in oil prices than diaspora remittances”.

Despite rising crude oil prices, Nigeria’s external reserves have lost 5.7% of its value from January 25 to March 17, 2021, FSDH macroeconomic report for the first quarter of 2021 revealed.

Challenged oil inflows due to OPEC cuts, weaker foreign investment inflows, high demand for foreign currency to finance imports and other needs and possible clearance of FX backlogs are factors that continue to weaken External Reserves.

The new policy on remittances flow by the Central Bank, which offers to reward recipients of diaspora remittances, is expected to reduce costs and check round tripping, according to the regulator.

Further to the introduction of its new “CBN Naira 4 Dollar Scheme” which came into effect on Monday, March 8, 2021, the Central Bank of Nigeria said the move was aimed at providing Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances to Nigeria.

Godwin Emefiele, CBN Governor, explained that the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities, even as he expressed optimism that the new policy measure will encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.

He said the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilizing the exchange rate and supporting accretion to external reserves. More importantly, he said it would provide an opportunity for Nigerians living abroad to make investments in their home country.

Reiterating the provision of the new circular, the CBN Governor said the Bank introduced the rebate of N5 for every $1 of fund remitted to Nigeria, through International Money Transfer Operators (IMTOS) licensed by the Central Bank in order to incentivize the process of remittance. He explained that the rebate will be provided to the bank accounts of beneficiaries, following receipt of remittance inflows.

Emefiele emphasized that the new measure would help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora.

Citing cases in other climes, Emefiele said the use of reimbursements of remittance fees had been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic.

While noting that the average cost of sending $200 worth remittances to Nigeria from the United States was about 4.7 percent, he said studies had shown that even a one percent decrease in cost of sending remittance could result in a significant boost in inflows.

“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 $2bn a month even during the COVID pandemic.

“Bangladesh introduced its own scheme in June 2019, which is a 2 percent rebate on remittance inflows. Following this action, they have also seen a 20 percent boost in remittance inflows,” he explained.

Commenting on the issue of round-tripping, the Bank’s spokesman and acting director, Corporate Communications Department, Osita Nwanisobi explained that there was a maximum amount that could be remitted through an IMTO, adding that no customer could send $100,000 through an IMTO.

Though he admitted that the CBN action does not go far enough in offering total reimbursements, Nwanisobi said it was a step in the right direction in reducing the cost burden for Nigerians remitting funds to Nigeria.

While also noting the existence of initial challenges of network integration, Nwanisobi reiterated Emefiele’s assurance that the CBN would continue to work assiduously to resolve the few challenges that were remaining.

Nigerian banks on March 8, 2021 commenced the implementation of the CBN’S new policy on diaspora remittances, tagged ‘Naira 4 Dollar’ scheme, which offers N5 for every Dollar received into domiciliary accounts or as cash over the counter.

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