Money sent home by Nigerians who live abroad looks set to decline this year due to weak global economic growth, a new report has said.
PwC Nigeria, a professional services firm, said in its latest Nigeria economic outlook report that “a weak global economic growth may negatively affect remittance flows into the economy”.
“The decline in remittance flows may reduce foreign exchange flows to the economy. Though remittances to Nigeria accounted for 38 percent of the total flows to the region, it increased by only 3.3 percent to $20.1 billion,” the report said.
Many Nigerians have relocated to the United Kingdom, Canada and the United States, among others, in recent years in search of greener pastures, a development that is popularly called ‘japa’ (a Yoruba word for “run quickly”).
Data from the World Bank’s latest Migration and Development Brief report show that remittance flow to Nigeria grew by an estimated 8.85 percent in 2022, the highest in three years, from $19.2 billion in 2021.
Africa’s biggest economy had seen its diaspora remittances plunge to $17.2 billion in 2020 amid the fallout of the COVID-19 pandemic from $25.3 billion in the previous year.
The World Bank had projected in June that the global economy could slow substantially this year, with a pronounced deceleration in advanced economies.
“Monetary tightening is expected to have its peak impact this year for many major economies. Global growth is forecast to decline to 2.1 percent, a full percentage point less than in 2022, before a tepid recovery to 2.4 percent in 2024,” it said at the time.
The PwC report said the increase in the global central bank policy rate may lead to capital reallocation away from Nigeria’s financial market to other markets with more attractive yields on investment.
“Capital reallocation from Nigeria’s economy may continue to impact foreign investment flows in the short to medium term. Investors may adopt a wait and see approach due to lack of forward guidance on foreign exchange policy,” it said.
It added that the Nigeria MSCI index recorded a significant decline of 113 percent, from 23.5 percent in 2020 to -3.02 percent in 2022, reflecting capital reallocation to other economies.
Before the Central Bank of Nigeria collapsed all segments of the FX market into the Investors & Exporters window in June, the country’s dollar liquidity crisis had worsened on the back of the Russia-Ukraine crisis, which started in February last year.
The naira depreciated from 416.52/$1 as of February 28, 2022 to N775.20/$1 on October 5 at the official market. At the parallel market, popularly called black market, it fell to 1,002/$1 from N575/$1.
The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to an 18-year high of 25.80 percent in August from 24.08 percent in July, according to the National Bureau of Statistics.
“The unsettled FX backlogs may lead to scarcity of goods and inputs for manufacturing and trade leading to further increase in prices,” analysts at PwC said.
The report also revealed that real income is still under pressure as inflation continues to rise and national minimum wage remains unchanged in the short-term.
“In addition, input costs (including the year-on-year increase of 216 percent in Premium Motor Spirit from January to September) will continue to pass through to consumer prices further worsening the affordability of goods and services in the economy in the short to medium term,” it said.
It added that the rise in energy, food, transportation and import costs may dampen consumer spending on non-discretionary items.
The firm projected a 2.8 percent economic growth rate for Nigeria in 2023, down from 3.1 percent in 2022.