On CBN’s incentives to increase Diaspora remittances

The Central Bank of Nigeria through its Trade and Exchange Department has rolled out a new scheme that addresses foreign remittances into the country by Diasporas.

In a circular addressed to all deposit money banks (DMBs), International Money Transfer Operators (IMTOs) and the general public, the director of Trade and Exchange Department assures all stakeholders that the new ‘Naira 4 Dollar’ scheme was an effort to “sustain the encouraging increases in inflows of diaspora remittances into the country”.

According to the Director, “all recipients of diaspora remittances through CBN licenced IMTOs shall henceforth be paid N5 for every $1 received as remittance inflow”.

This foreign exchange (FX) stimulant policy which took effect on the first week of March 2021 covers transactions with local deposit money banks (DMBs) within the country facilitated through registered IMTOs but excludes any inflow due to cryptocurrency transfers.

This policy is seen as a supply-side intervention by the apex bank to ease the pressure on the dollar by increasing its supply through diaspora remittances. Also, it is expected that further depreciation of the naira will be prevented by this scheme.

In a statement, the CBN governor, Godwin Emefiele emphasised that the new initiative is a cheaper and more convenient means to transfer foreign funds while encouraging longer-term home-based savings by Nigerians living abroad. The supply-side policy is expected to further aid diaspora investments and increase the transparency of remittances inflow.

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Emefiele further explains that the current cost of sending $200 from the US to Nigeria is 4.70 percent, and a 1 percent decrease in cost will result in more inflow expectedly. He further points out that over $2 billion inflow was recorded in Pakistan during the novel Covid-19 pandemic as the government engaged similar efforts to lure more foreign remittances into the country.

Also, Bangladesh’s 2 percent rebate on foreign remittances led to a 20 percent boost in total inflows due to diaspora transfers, Emefiele further noted. Hence, reducing the cost burden of diaspora remittances invariably encourages more inflow in a significant manner.

Rewarding every $1 transfer remittance through licenced IMTOs with a N5 rebate by the CBN according to Emifiele, would “help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora”.

Commenting on the value that remittances contribute to the domestic economy, the vice president of Nigeria, Yemi Osinbajo, through the executive secretary and chief executive officer, Nigerian Investment Promotion Commission (NIPC), Yewande Sadiku, highlights the importance of foreign family support for local investment.

Osinbajo submits that family support gulps 70 percent of total foreign remittances inflow while local investment, particularly real estate, account for 30 percent of these funds.

The vice president commended the effort of the CBN to promote more inflow of funds from the diaspora. He also assured that more inward-oriented policies will be pursued to facilitate the ease of doing business in the country.

“Specialised diaspora foreign currency accounts with investment-friendly interest rates that could compete with European or American rates should be encouraged” he said.

These specialised account holders will be guarded against specific country risks that will ensure that their investments are properly insulated from losses resulting from bank failures and other unforeseen events.

However, the effectiveness of this new scheme to encourage increased inflow of foreign currency through remittances on the one hand, and to aid the stability of Nigeria’s foreign exchange market in the face of a weakening naira value, on the other hand, is open to debate.

Adeboye Fajemisin, executive director of Cynthian, Consulting Limited is of the opinion that the CBN’s new scheme may not be as effective as expected.

“Encouraging remittance is good, may ease the pressure on the limited forex resources of the CBN but largely because 70 percent of those remittances are for domestic consumption; it will not even scratch the surface of the BOP problems” he noted.

Furthermore, questions bordering on the attractiveness of the N5 incentive abound, as sceptics doubt that this alone would lure more inflow of foreign exchange into the country by foreign nationals.

On this, Fajemisin believes that the responsibility of family members in the diaspora towards their friends and relatives back home does not depend on policies such as the CBN’s Naira-4-dollar scheme.

The corporate strategist and entrepreneur, Fajemisin further notes “the people who are fortunate enough to have families and friends living abroad would always depend on hand-outs from their families abroad to survive. We do not need any “Bonanza” to encourage this”.