• Tuesday, July 16, 2024
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UK, US economic crunch threatens remittances into Nigeria

Turning diaspora remittances from consumption and social support to investments

Remittances into sub-Saharan Africa, with Nigeria known to be its largest beneficiary, are threatened by the economic crisis in the United Kingdom and the United States, among others.

The World Bank had projected in its recent Migration and Development report that remittances into sub-Saharan Africa would rise by seven percent this year.

“Uncertainty and risks in the outlook for remittances to Africa (2022) are exceptionally high against the background of global conditions affected by the Russian invasion of Ukraine, combined with the lingering effects of the COVID-19 pandemic,” Dilip Ratha, head of Global Knowledge Partnership on Migration and Development (KNOMAD), said in an emailed response to questions.

Migrants in host countries are experiencing deteriorating external conditions like looming recession with inflation rate at 9.4 and 8.5 for the UK and US respectively, surging prices in goods and services, tighter monetary policies, supply chain bottlenecks from the Russia-Ukraine war, combined with the lingering effects of the COVID-19 pandemic.

A Nigerian living in the UK who identified himself simply as Makua said inflation rate and high cost of living crisis were currently rocking the UK. “You can only give from the little you have,” he said.

Rotimi Johnson, a father of three living in the UK, told BusinessDay, “People need the money more here; if you were earning 5,000 pounds before and you could keep 2,000 pounds, but now you can barely save 1,000 pounds because everything is expensive due to inflation, you won’t be able to send as much as you used to.

“You have to take care of yourself first before those at home.”

Remittance inflow into sub-Saharan Africa and Nigeria hit $49 billion in 2021 and $19.2 billion in Nigeria, and with the projection of 7 percent increase, would increase to $51 billion and $21 billion respectively, according to the World Bank.

The report said strong gain in 2021 was the highest since COVID-19, and the growth in remittances was supported by strong economic activity in Europe and the US and also partly due to policies intended to channel inflows through the banking system in Nigeria, leading to its 11.2 percent increase from 2020.

Ratha said despite the external factors causing the uncertainty, remittance inflow should perform well for reasons such as high performance in job markets in the US and UK, which are the largest host countries, increase in usage of official channels for remittance inflow to Nigeria, given regulatory change.

“Although economic activity is easing in the United States and Europe as pandemic-related fiscal programmes phase out, inflation moves higher, and financial conditions tighten, fundamental market conditions (especially for employment) are anticipated to remain fairly firm,” Ratha said.

The Bureau of Labor Statistics reported that the US unemployment rate hit 3.5 percent in July, this is a move back to its pre-covid level.

The UK recorded 3.7 percent unemployment rate in June, which is 0.2 percentage points below pre-coronavirus levels, as reported by the Office of National Statistics. Latest data released this week show that unemployment rose to 3.8 percent.

Read also: Like Nigeria’s, UK rental market slides into crisis

During the peak of COVID-19 in the US, the employment level of foreign-born workers fell by 21 percent in April 2020, compared to February 2020, but steadily recovered afterwards.

The recovery in employment levels, together with cash transfers received directly from the government, enabled migrants to send remittances to family and friends back in their original countries.

In Nigeria, policies such as the ‘Naira 4 Dollar Scheme’ introduced by the Central Bank of Nigeria on March 8, 2021, encourages inflows from the Nigerians in the diaspora, as recipients will be paid N5 for every $1 received as remittances. It also permits recipients to receive this reward whether they choose to collect the USD as cash, over the counter in a bank or transfer it into a domiciliary account.

“Increased usage of official channels for inflows to Nigeria, given regulatory change, should sustain uptrends in recorded flows — this has already been witnessed in remittance inflows to Nigeria for the final quarter of 2021 and the first quarter of 2022, registering gains of 23- and 20-percent (year-over-year), respectively,” Ratha added.

According to him, migrants tend to be considerate of the economic happenings of origin countries, especially higher food prices and food insecurity in Africa despite the uncertainties in the host country as shown in 2020.

“As was demonstrated during the peak of the COVID-19 pandemic, the existing overseas labour force will likely continue to send money to help families in home countries now experiencing increases in the prices of food and other essentials,” he said.

Other factors believed to influence persistent inflows are revival of intraregional remittance flows, from the large stock of migrants from the rest of Africa residing in countries that will benefit from improved terms of trade.

“The doubling of global crude oil prices and increases in several metals are serving to improve fiscal revenues and — prospectively – growth for countries such as Nigeria,” the report said.

It said remittance inflows had proved to be resilient, the global financial crises and Covid-19 crisis showed that even during a crisis in the host country, migrants may try to reduce consumption (or rent payments) and draw on their savings to continue to send money home.