With a US dollar exchanging for N500 last week and our external reserves hovering at about $35 billion, it was clear that something urgent and more impactful needed to be done to avert a free fall of the Naira. This possibly led the Central Bank of Nigeria (CBN) to introduce a new policy that will allow remittances from Nigerians in diaspora to be received in foreign currencies here in Nigeria.
Dilip Ratha of the World Bank stated that ‘’remittances, money migrants send home to family and friends, provide the most tangible and perhaps the least controversial link between migration and development. In times of an economic downturn or a natural disaster or political crisis back home, migrants send a bit more to help their families. Thus remittances often act as insurance against unexpected adverse events.’’ Last year 2019, Nigerians in Diaspora reportedly sent about $23.8 billion and this year 2020, it is projected that they will send in about $21.7 billion. As these Nigerians in diaspora have been sending in the excess of $20 billion dollars every year, it means that they send in almost equivalent of Nigeria’s annual budget using the current exchange rate of about N470 to a dollar. Meanwhile, we are talking of remittances sent through the formal channels. If we add the ones sent through informal channels such as Nigerians returning from abroad, we will be looking at over $40 billion every year.
In addition to the higher costs of sending money to Nigeria, the lack of standard rules has exacerbated the challenges faced by Nigerians and pushed many to the informal money transfer segment
With such immense contribution to our economy, the question is why the limited appreciation, support and utilization of such untapped asset. While the sudden CBN policy is commendable, it is important to note that more support is needed from the CBN and the banks to properly develop and utilise the immense opportunities provided by Nigerians in diaspora. A key constraint to many diaspora Nigerians that want to send money to Nigeria is the cost of sending the money. While it cost about 8.9 percent to send money to Sub-Saharan Africa, the cost to other parts of the world is about 6.8 percent. In addition to the higher costs of sending money to Nigeria, the lack of standard rules has exacerbated the challenges faced by Nigerians and pushed many to the informal money transfer segment. Expectedly, with the high cost, lack of transparent rules and the preference of informal segment, the scarcity and pressure on Naira are sustained.
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Even though that we commend CBN for the reactive intervention, what is required is more of proactive interventions. With a proper arrangement, the cost can be significantly reduced. In addition to partnering with transfer agencies such as Western Union, Ria, MoneyGram and Nigerian banks to reduce their transfer and handling charges, the CBN can creatively collaborate with Nigerian banks to significantly reduce the costs of money transfers.
First, as some Nigerian banks have branches in major countries and cities, it is an opportunity that can be used to reduce the cost of remittances. A creative arrangement can be made for the remittances to be transferred to the Nigerian banks abroad who will then transfer back to Nigeria through their local branches or other banks in Nigeria. With such collective and direct transfer within the same bank or even two banks, the cost of transfer can be reduced through economies of scale and scope. Second, as Nigerians that will receive the money will ultimately change it to Naira based on prevailing exchange rate, the foreign currencies collected abroad can be utilised to finance imports while the banks pay the recipient Nigerians the prevailing Naira equivalent. A good way to support this approach is the need to have a unified exchange rate and then float the Naira so that the exchange rate can be determined by forces of demand and supply.
In addition to the huge opportunity to increase the remittances, the Nigerians in Diaspora can also be effectively used to boost and revolutionise our economy through agriculture. With about 15 million Nigerians in Diaspora, only a very small quantity of the foods consumed by them are sourced from Nigeria. Sadly, even when many will prefer Nigerian produced food products, majority of the food products are sourced from South America and Asian countries.
With each of the 15 million Nigerians in Diaspora likely to spend about $15 every day on food, it means about $225 million every day and about $82 billion every year. As majority of Nigerians will prefer to consume Nigerian foods, the question is what percentage of the annual $82 billion should be sourced from Nigeria. For a start, I think that setting a 25Percent target which is about $20 billion (about N10 trillion) every year is realistic and achievable.
The question is why majority of the food products consumed by Nigerians in Diaspora are not sourced from Nigeria. While Plantain and Banana are imported mainly from Argentina, Ecuador and Uruguay that are about 14hours by flight to UK for instance as compared to 6hours from Nigeria, Okro and other vegetables and fruits are sourced mainly from Pakistan and India. There is therefore a big opportunity for Nigeria to supply majority of the food products required and preferred by Nigerians in Diaspora.
Using UK for instance, the main reason why both the big and small UK supermarkets do not source these food products from Nigeria is due to the poor packaging standard in Nigeria. This is where the government, CBN and even the bank(s) can come in to address the challenge and stimulate the economy through agriculture. What is required is to build and manage food packaging centres of international standards near our international airports with at least one packaging centre in each geo-political zone. It will also require the setting up of warehouses or distribution centre(s) in London for onward distribution to other parts of the UK.
The essence of the above is that with a strategic thinking, Nigerians in Diaspora can contribute over $60 billion every year to Nigeria. Not only will it lead to better revenue for Ozor Nwanjiam of Abakaliki, it will increase his life span due to the psychological satisfaction that his yams are sold and consumed in ‘London’ (Obodo oyibo). It will help Mrs Abuse of Vandekiya village of Benue state to train her kids through the export of Mangoes that are in abundance and wasting in her village. Alhaji Aminu from Fagge in Kano state will live in peace with Joshua in Jos as they are both involved in the export of carrots and groundnuts. Mr Gbadamosi will prefer to live in Ogbomosho than in Lagos due to his Amala processing plant which provides him with a good income through the supplies he makes to his in-law, Femi in Peckham, London. Imagine the yearly impact of N30 trillion on Nigerian economy and less privileged Nigerians! The benefits are endless!
