Nigeria could see a slowdown in diaspora remittances for the first time in over a decade amid global economic crisis fuelled by coronavirus outbreak, according to Agusto & Co.
The consulting arm of the rating agency expects a 20 percent drop in the diaspora remittances that will be recorded for Africa’s most populous country this year, saying the projected drop will further put the naira under some more pressure.
“With an economic crisis in several western nations, Nigeria could see a slowdown. We are forecasting a 20 percent drop in the diaspora remittances to $20 billion,” Agusto & Co. said.
That would be a decline of $5 billion from the $25 billion reported in 2019.
Nigeria received $25 billion in direct diaspora remittances between January and December 2019, as compiled from data by Nigerians in Diaspora Commission (NIDCOM).
“For 2019, we are dealing with about $25 billion as remittances from Nigerians in the diaspora,” Abike Dabiri-Erewa, chairperson, NIDCOM, said.
She said the figure did not include monies sent through informal means.
“The foremost remittances are not even captured – the $500 to your brothers, to your sisters. We hope that Nigerians in the Diaspora continue to help in resuscitating the Nigerian economy,” she said.
A recent report by PwC, titled ‘Strength from Abroad: The Economic Power of Nigeria’s Diaspora’, estimates that migrant remittances to Nigeria could grow to $29.8 billion in 2020/2021.
The London-based service firm’s projection may be threatened by the impact of the coronavirus outbreak on the global economy and business activities.
Countries like the US and UK, the destinations where Nigerians abroad send more money from, are top on the list of those that have been most affected by the COVID-19 pandemic as they have recorded some of the highest cases.
Data by the US Government revealed that more than 10 million people filed for unemployment benefits in the last two weeks of March. The unprecedented spike was due to the coronavirus pandemic, which has shut down wide swaths of the American economy.
For many developing nations like Nigeria, remittances from citizens working abroad provide a source of much-needed funds.
While crude oil is still Nigeria’s dominant source of FX inflows, diaspora remittances also contribute to the dollar earnings of the Central Bank.
According to Agusto & Co., the projected drop in Nigeria’s diaspora remittances will further put the naira under some more pressure.
“While we do acknowledge that the country’s import bill will drop owing to the distortions in local and global economic activities, we do not believe that this will provide sufficient support for the naira,” it said.
With Nigeria’s external reserves falling below $36 billion in March, the lowest level in 29 months, the CBN was forced to move the exchange rate in the Investors and Exporters (I&E) window to N380.2/$, from N366.7/$, in a move that suggests a technical devaluation of the naira. Under the new dispensation, the CBN would make the dollar available to the BDCs at N378, which would be sold at N380.
Nigeria’s currency could come under more depreciation pressure and become weaker against the dollar to trade at N420/$ in 2020 amid a crash in crude price, according to projections by emerging and frontier markets-focused firm Renaissance Capital.
That would mean the naira will be devalued by 10.53 percent as against the current N380/$ official rate.
“Our estimate value for the naira is N420 to a dollar. This implies that we expect the currency to come under depreciation pressure in 2020,” Yvonne Mhango, sub-Saharan African economist at Renaissance Capital, said.
