While Nigeria expects to increase formal diaspora remittances to boost dollar inflows through the new rule by the Central Bank of Nigeria (CBN), the high cost of sending money to Nigeria is another challenge that may not allow the policy to reach full potential.
The new rule by the apex which is expected to only solve the issue of Nigerians getting less rate from the formal transfer channels than the black market but doesn’t provide a solution to the high cost of remittances, one of the major reasons why Nigerians in diaspora prefer informal transfer channels which offer a more flexible and affordable transfer cost.
It is more expensive to send money to Nigeria and some other countries in Sub-Saharan Africa (SSA) than anywhere else in the world, according to the October 2020 Brief of the World Bank’s Migration and Development report.
According to the data analyzed from the report, the cost of sending money to the region is almost two times higher than what it costs to transfer funds to any other part of the world, which makes SSA the costliest region to send remittances.
While it cost an average of 8.5 percent to send, for example, $200 to SSA in Q3 2020, it cost an average of 5 percent and 7 percent to send the same amount to South Asia and the Middle East and North Africa, respectively.
“For years I have been sending money through my friends and even now, we have a lot of people that are ready to help at a cheaper rate,” Erema Imafidon, a UK-based Nigerian told BusinessDay on WhatsApp.
Despite the new policy by the apex bank that allows the recipient to receive remittances in US dollar, Imafidon is not sure she will switch to the formal transfer channels “because informal transfers are cheaper” and her “family in Nigeria can receive the pounds and change it from Aboki at a better rate.”
According to the World Bank, remittance costs across many African corridors like Nigeria and small islands in the Pacific remained above 10 percent while it cost 5 percent in Asia.
Going by the World Bank’s estimated 10 percent remittances cost, it will cost nothing less than $1000 to send $10,000 from abroad to Nigeria, this compares to the $500 it will cost to send the same amount to Indonesia.
To reduce remittances cost to Nigeria and other countries in SSA, the World Bank recommended the promotion of digital technology and increase competition through regulatory policies.
“The promotion of digital technology, which is cheaper than non-digital services, combined with a regulatory environment promoting competition in the remittances market, and relaxing money-laundering regulations, are essential for SSA countries to achieve the SDG target of 3 percent by 2030,” Dilip Ratha, member of the Migration and Remittances in the Social Protection and Jobs Global Practice said.
Meanwhile, the recent policy by the CBN is following among other factors the dollar shortage in Nigeria which is fuelled by oil prices tank resulting from the global demand drop in the wake of the coronavirus pandemic.
