Pan-African credit rating agency and research firm, Agusto & Co says foreign exchange remittance flows into Nigeria will rise to about $26 billion by 2025, and will be supported by improved economic conditions in advanced economies.
Given Nigeria’s high poverty rate, which increases reliance on foreign aid, Agusto & Co. also anticipates that the need to finance the basic requirements of dependents to remain the most important element driving remittances in the near to medium term.
Nigeria was the second-highest recipient of diaspora remittance into Africa in 2021 with $20.1 billion, trailing Egypt with $28.3 billion.
Although Egypt and Nigeria received over half of all remittances to Africa, the rise in inflows into Egypt remained robust, at double digits (16 percent), while growth in Nigeria slowed to 3 percent.
According to Agusto & Co, remittances from the diaspora have played an increasingly essential role in Nigeria’s economy, serving as an important source of foreign exchange earnings and a catalyst for economic growth and development.
“As more Nigerians, discouraged by the country’s gloomy economic conditions, look overseas for opportunity, their remittances will continue to play, a crucial role in sustaining the Nigerian economy. The growth of these funds has been exceptional, empowering dependents to meet their basic needs, pursue education, access healthcare, and embark on entrepreneurial endeavours.”
Nigeria’s emigrant base is currently skewed towards the economically productive middle-class demographic, which is positive for remittances and underpins the need to devise strategies targeted at this age group to ensure the sustainability of remittances.
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However, given the significant contribution of students to the emigrating population, Agusto & Co. expects a surge in remittance inflows in the medium term.
In June 2023, the CBN liberalised the foreign exchange regime, doing away with market segmentation, collapsing all the segments into a single exchange rate window – Investors and Exporters (I & E) Window – and adopted a managed floating exchange rate regime.
“We believe that the unification of exchange rates would also incentivise remittance inflows through official channels, particularly for investment purposes, as it is likely to improve the FX liquidity position, which would facilitate the repatriation of funds.
The report further explained that Nigeria has been dealing with the challenge of emigration and brain drain for decades as a result of the rising number of people fleeing in search of greener pastures amid the country’s dim economic prospects.
“As more countries, particularly highly sought-after destinations, have become more welcoming of immigrants as a result of the global labour shortage experienced post-COVID-19, there are now more opportunities than ever for migrants seeking employment in environments with improved economic and living conditions.
However, this widespread exodus has left many businesses severely understaffed, which has stunted the expansion of a variety of industries and lowered tax revenues for the government.
Nonetheless, remittances from the diaspora provide foreign exchange and capital injections to stimulate economic activity.
“Remittances are also often utilised to support the livelihoods of dependents back home.”
Agusto & Co. believes that the surge in emigration witnessed in 2022 is yet to translate to a commensurate rise in remittances, as the majority of the emigrants are students who will not be able to fully join the labour force in their host countries until mid-2023.
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