Nigerians living abroad could be sending more money home than authorities realize, courtesy of an FX management policy that encourages companies and individuals to bypass official channels to survive.
By bypassing official routes, those sending money home ensures their families get much more naira for their smuggled dollars on the black market, Bloomberg reports.
Remittances to Africa’s biggest oil producer plunged by about 40% in the second quarter to the lowest level in at least a decade.
Intriguingly, that’s more than a drop of about 20% in Egypt and contrasts with improvements seen in Kenya, Sri Lanka, Pakistan, Bangladesh and Morocco, according to central bank data compiled by EFG Hermes.
Changing a greenback on Nigeria’s streets puts about a quarter more naira in the pockets of struggling Nigerian households than what they’ll get at the official rate.
The central bank of Africa’s biggest economy uses multiple exchange rates and a raft of regulations to try and protect the local currency from further devaluations amid lower oil prices and a plunge in foreign investment.
“When you have such divergent foreign-exchange rates, many expats will find ways to get money into Nigeria at the best possible rate,” Renaissance Capital’s Chief Global Economist Charlie Robertson said in an email.
Currencies in countries including Kenya and Pakistan trade at about the same value in formal and informal markets, “so there is no reason to use backdoor channels.”
The sharp downturn in Nigerian remittances is in contrast with most other frontier and emerging-market countries that look poised to defy World Bank predictions for a 20% decline this year.
Remittances may look better than they should because foreign workers are sending money back home as they lose their jobs and leave for good — especially for countries that rely on Gulf Arab states for their income.
