Latest reports from the Central Bank of Nigeria (CBN) reveal that the country attracted 24 percent fewer diaspora remittances in the first quarter of 2021 than in the previous year.
According to the CBN’s balance of payment (BOP) data, foreign financial flows from Nigerian families abroad into the country fell to $4.2 billion in Q1, 2021, from $5.6 billion in Q1, 2020.
Within the limits of Nigeria’s foreign exchange battles, the country’s reliance on foreign remittances has necessitated the need for policy strategies to increase inflows to boost the balance of payment nation’s obligations.
The trend of declining remittance inflows to Nigeria has been a matter of concern to the government since a sizable proportion of this flow is usually channelled to meet the day-to-day needs of Nigerians at home. Reports from the World Bank show that in 2019, the total remittance inflow into the country was $21.45 billion. By 2020, inflows to the country stood at $16.8 billion, representing a 27 percent decline within a year.
Read Also: On CBN’s incentives to increase Diaspora remittances
According to the CBN, in 2018, total home remittances recorded up to $1.7 billion, but by 2019, it showed a decline up to $1.2 billion. Many experts believe that a combination of internal and external factors are pointers to the frequently declining nature of these financial flows to the country.
The outbreak of the much-feared coronavirus pandemic in 2020 has been acclaimed to be a major external force that stalled the growth of foreign remittances to Nigeria and other nations of the world that depend on this flow. Although, within the same year, some regions experienced increased inflow, many other regions experienced otherwise.
During the heat of the Covid-19 pandemic, remittance flows rose in Latin America and the Caribbean by 6.5 percent, South Asia by 5.2 percent, and the Middle East and North Africa by 2.3 percent, respectively.
In East Asia and the Pacific, however, foreign remittances fell by 7.9 percent, in Europe and Central Asia by 9.7 percent and in sub-Saharan Africa (SSA) by 12.5 percent.
According to World Bank data, SSA’s declining remittance experience during the pandemic in 2020 was almost entirely due to a 28 percent flow shortage to Nigeria. If Nigeria’s inflow default is discounted, then diaspora remittance flows to SSA countries will be on a positive scoreboard, recording a 2.3 percent increase in inflows within the same period.
The Nigerian government has been responding to foreign exchange supply shortages within the country by implementing home-based policies to attract more flows to augment the nation’s sovereign revenue. The most recent policy is the popular Naira-4-Dollar scheme rolled out by the CBN in March 2021.
The scheme is a supply-side policy set to ease the pressure on the dollar by increasing its supply through diaspora remittance inflows. The policy was also set up to help stall further naira depreciation, which was becoming increasingly worrisome.
Since trans-national flows from foreign-based citizens of the country are seen as boosters to home-based investments and family welfare, the CBN’s Naira-4-Dollar initiative is seen as a channel to canalise more of these flows in a cost-efficient and transparent manner from donor to receiver.
With the expectation that both current and previous policies will yield desirable results, Nigerians are losing hope in the face of declining remittance inflows and continuous currency depreciation.
The World Bank reports that a foreseeable increase in remittances to low and middle-income countries is inevitable, giving a post-pandemic rebound in global trends. The international institution predicts that with increased vaccination rollout and economic recovery, especially in the western regions of the world, remittances to low and middle-income nations will rise in 2022 by 2.6 percent and 2.2 percent, respectively.
With trillions of dollars expended in stimulus packages by the government in Europe and the United States, foreign-based Nigerians in those nations are positioned to prioritise survival over remittances to their home countries, limiting the volume of flows to home-based family members in the country.
Furthermore, Nigeria’s foreign exchange transfer processes through official channels require multiple stage processes and charges, which many diasporas exclaim as overly rigorous and burdensome. Hence, black market channels and peer-to-peer transfers supported by cryptocurrency exchanges are patronised in place of the required official transfer window. These unofficial transfer windows compete favorably with official channels and hence, limit official remittances reporting.
Also, the volatile nature of the dollar, which adversely impacts the value of the naira and frequent FX supply shortages, limits the effectiveness of the CBN’s Naira-4-Dollar scheme.
Promoting increased diaspora remittance flow into the country will require the government to weigh its policy might on policies and processes that must ensure a significant reduction in the cost of sending money from abroad while improving the convenience of doing the same.
Regulations that protect the financial integrity of money senders and receivers must be prioritised to encourage increased remittance activities between the involved parties. Also, financial inclusion strategies for the poor must be considered if more flow of foreign financial aid from diaspora households must be experienced.
