While much of the reform agenda in the country has been focused on the economy, we need to consider whether we have an appropriate structure to attract more direct foreign exchange remittances. For the purposes of this discussion today, our outlook is drawn from our ongoing research and has broader relevance to how future policy formulation can promote and support diaspora contributions.
We often tend to think that foreign direct investments (FDI) bring numerous benefits, including capital, technology, expertise, and jobs, all of which contribute to the overall development and modernization of the economy. However, FDI is not as stable and resilient as foreign exchange remittances. Think of foreign exchange remittances as money transfers from Nigerians based outside of the country to family members or individuals within the country.
Not only are remittances more stable and predictable compared to FDI, which can be volatile and influenced by global economic conditions and investor confidence, but they also serve as a lifeline for development and now represent the largest source of foreign income for many developing countries. Among other things, remittances directly support household income by lifting families out of poverty and providing funds for basic needs such as food, housing, and education.
To us, this raises a very clear question: What does the data say about remittances to Nigeria?
Let us start by acknowledging that it is difficult to estimate the exact data on remittance flows as many occur through unofficial channels. However, remittances to Sub-Saharan Africa in 2023 increased by $54 billion, with Nigeria alone accounting for 38 percent of the region’s total. This trend is supported by 2024 data on remittances. In the first quarter (Q1) of 2024, data released by the Central Bank indicated that the Nigerian economy received $282.61 million in total direct foreign exchange (FX) remittances. More recent data on the economy indicate that remittances flowing into Nigeria have surpassed the amount of foreign direct investment in recent years. In our view, we believe this gap will continue to widen.
Now let us turn to a segment of the diaspora community that we believe plays a role in accelerating diaspora remittances. If you accept the narrative we have presented, one must ask: How do diaspora entrepreneurs contribute to shaping the economy?
Though hard to precisely measure, one vital fact about diaspora entrepreneurs is that they play a significant role in shaping both the Nigerian economy and that of their host country. To get some indication of how their impact has evolved over time, let us pause here to explain why they are a real-world proxy for driving economic growth.
As we have argued more extensively elsewhere, it is likely not news to many that much of their progress is evident through remittances to families, which drive new businesses and job creation. Some of what we know is that these remittances serve as lifelines for supporting families, employment, and economic activities in Nigeria. This typically means these remittances finance education, health, and small businesses to create a cycle of growth and development. Their philanthropic activities further support community development, enhancing education, healthcare, and infrastructure.
In fairness, while the achievements of many diaspora entrepreneurs are reflected in their support of the economy, there is much policymakers can do to support and promote the cross-fertilisation of ideas and productivity gains that diaspora ideas can bring.
Let us provide a few examples: Diaspora entrepreneurs have started businesses such as Calendly, a software company that develops a business communication platform used for team scheduling; Kibo, an online university providing quality STEM degrees to African students; and Global Infrastructure Partners (GIP), founded by Ogunlesi. GIP invested worldwide in infrastructure assets across the energy, water, transport, and waste industry sectors until its recent sale to Blackrock in a $12.5 billion deal.
Our goal, therefore, should be to develop—and continually harness—the economic potential of diaspora entrepreneurs through a clear and sensible policy framework. One that simplifies business registration and offers tax incentives can attract them to start new ventures in Nigeria. The best way to do this is by establishing special funding programmes and low-interest loans that are receptive to diaspora entrepreneurs so they can build the necessary capital, while creating diaspora investment funds that can channel resources into local startups. There is more that can be done to accomplish this.
Closing thoughts:
While we should expand opportunities for diaspora entrepreneurs to contribute, policymakers can facilitate training programmes and establish mentorship networks to help local entrepreneurs gain valuable skills and knowledge from their overseas counterparts. We should also ensure clear property rights and improve security to build confidence among investors, making it safer for diaspora entrepreneurs to invest their remittances in local projects. Balancing the launch of recognition programmes for successful diaspora entrepreneurs, which can promote them as role models and inspire others to contribute, with prioritising incentives for skilled Nigerians abroad to return home, can enhance the local talent pool and further boost the economic benefits of remittances. Furthermore, developing special economic zones with modern facilities can create hubs of economic activity.
The hope is that we can adopt a more receptive tone to welcome diaspora contributions in a way that enables a more innovative, efficient, and effective approach for the future.
Bekee Bariture is a doctoral research student at the University of the West of Scotland, while King Omeihe is the Chair of African Studies at the British Academy of Management and a Senior Lecturer at the University of the West of Scotland.
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