Diaspora remittances, domiciliary accounts become battlegrounds for Nigeria’s FX crisis

Nigeria moved over night to correct a big anomaly in the way it engages with its people and their hard-earned dollars.

The Central Bank issued a circular which seeks to eliminate a great part of the barrier to diaspora inflows to Nigeria by saying that those who get remittances from abroad will now be able to receive the flow in dollars and should therefore be able to get the best rate for their money.

Earlier in the day, the government had provided badly needed clarifications for the operation of domiciliary accounts in Nigeria, saying, exporters with domiciliary accounts will be allowed “use of their funds for business operations, only with any extra funds sold in the I&E window.”

Operators of ordinary Dom accounts “will be allowed unfettered and unrestricted use of these funds for eligible transactions” in the case of accounts funded by electronic/wire transfer while in the case of cash funded accounts, “existing regulations will continue to apply.”

Truth is no one will gladly send a dollar to Nigeria at N390 if he or she can get N490-500 for the same dollar.

Last week, Bloomberg reported that diaspora flows to Nigeria according to official data fell by more than two times the rate at which it dropped in a country like Egypt.

That article also suggested that the major reason for the huge drop in Nigeria was the multiple rates in the country compared with Egypt which has a single exchange rate.

By removing the barriers on how recipients can manage diaspora remittances, Nigerian authorities actually moved someway closer to the long awaited single exchange rate regime, even if that may not have been the expressed intent.

Nigeria suffers consistently from its low rate of gross fixed capital formation to GDP which hovers frustratingly at 7% when China is above 30% and India around 28%.

Speaking Tuesday morning at BusinessDay’s Pension summit, well acclaimed economist Andrew Nevin suggested that Nigeria would need to move its rate of investment to GDP to between 26-28% if it is to grow her GDP at 6% and above annually.

Going by even the Central Banks optimistic growth forecast, Nigeria’s economy will grow at just 2% next year, well below the rate at which the population is rising in Africa’s most populated nation.

This means another year of rising poverty in 2021.

Questions have been asked as to how long Nigeria will continue to grow its economy at rates below or around population growth before it suffers a catastrophic social explosion. Arguably, the recent ENDSARS protests may have helped to answer those questions.

So, Nigeria must urgently work to open up the economy, and put in place quickly, the key enablers that required to spur 6-8% inclusive GDP growth if the country is to make a dent on the shameful rate of poverty among its people.

Assuming anyone needs any reminder, there is acute prevalence of poverty in Nigeria. The rates are as high as 72%(North East), 65%(North West), 43%(North Central), 42%(South East), 21%(South South) and 12%(South West region.)

By its policy pronouncement last night, the CBN implicitly acknowledged the need to promote more dollar inflow into Nigeria and while this will be very helpful, Nigeria will still need to embark on a wholesale overhaul of the country’s foreign exchange market engagement rules.

Even if this were to happen, sometime will have to pass for confidence building among investors before the arrival of a new era of uninhibited flow of capital into the continent’s biggest economy.