Remittances near 3-year low on FX crisis, slow global growth

The amount of money sent home by Nigerians living abroad fell to the lowest in nearly three years as the scarcity of foreign exchange lingered in the country coupled with the slow pace of growth in some high-income economies.

BusinessDay analysis of the latest quarterly report from the Central Bank of Nigeria (CBN) shows that remittances inflow in Africa’s biggest economy through official channels fell to $4.58 billion in the third quarter of last year from $4.95 billion in the previous quarter. It also dropped by 4.6 percent from $4.8 billion in Q3 of 2022.

This situation has worsened FX liquidity challenges for Africa’s biggest economy as diaspora remittances are one of its major sources of FX.

“In Nigeria, the central bank’s interventions in the foreign exchange market led to an increasing divergence of the parallel and official exchange rates until the liberalisation programme in June 2023,” the World Bank said in its latest Migration and Development report.

It, however, said resistance to the increasing pressure on the Nigerian naira coupled with the limited supply of FX at the official window has led to the reemergence of the parallel market premium.

“It is likely that the substantial parallel market premium has significantly diverted remittances to unofficial channels.”

The multilateral lender projected that remittances flow to the country grew by an estimated three percent in 2023 from $20.1 billion last year.

“The slowed growth in remittances observed in 2023 relative to 2022 is explained by the slow pace of growth in high-income economies where many Sub-Saharan African migrants earn their income,” it said.

Last year, Folashodun Shonubi, former acting governor of the CBN, noted that a lot of diaspora remittances arrived in the country in dollars and were not officially documented; as a result, they ended up in black or parallel markets.

“With those remittances, the dollars have come in but we don’t see them in the official system. So, they must be going somewhere and somewhere,” he said.

He added that the challenge with the black market is that it is not regulated, and it becomes an easy place to have criminal activities.

In June, the apex bank merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The liberalisation of the FX regime as part of measures to revive the economy led to a large devaluation of the naira.

The currency depreciated from N463.38/$ to N889.86/$ as of December 15. At the parallel market, the naira depreciated to 1,186/$ from 762/$.

Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said the lingering depreciation of the naira favours the senders of remittances.

“Someone who is committed to sending N100,0000 ($135) in monthly upkeep since January 2023 would only need to send less than half before the end of the year. Even if the upkeep in naira is increased by 50 percent to N150,000, this is just $107, which is still lower than the initial $135 by 21 percent,” he added.

According to the World Bank, remittances can help alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children in disadvantaged households.

“Studies show that remittances help recipient households to build resilience, for example through financing better housing and to cope with the losses in the aftermath of disasters,” it said.

Over the past five years, many highly educated and skilled Nigerians have migrated to other countries as a result of the harsh economic conditions in the country that have been worsened by high inflation, unemployment, and insecurity, among others.

Many have relocated to countries such as Canada, the United Kingdom and the US through study and work visas.

At the 2024 Economic Outlook and Budget Analysis organised by the Lagos Chamber of Commerce and Industry last month, Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, said 90 percent of the estimated $20 billion diaspora remittances did not end up in the country.

He said they had spoken to many Nigerians almost everywhere, in the United States, and the UK, and they told them how they send remittances, saying they used apps that use parallel market rates and pay the naira equivalent in Nigeria without bringing the dollars.

Wilson Erumebor, senior economist at the Nigerian Economic Summit Group, said fintech apps and black-market operators receive huge FX inflows.

“Intense competition means that a weaker naira is a huge incentive for them to attract FX,” he said.

Between January 29 and 31 this year, the CBN published four circulars containing highly significant policy moves aimed at stabilising the FX market.

It mandated deposit money banks to ensure that the net open position limit of their overall foreign currency assets and liabilities on-and-off-balance sheet did not exceed 20 percent short or zero percent long of shareholders’ funds unimpaired by losses using the gross aggregate method.

It also announced the removal of the allowable limit of exchange rate quoted by the International Money Transfer Operators.