The die is cast. The official remittance market is in a battle for survival on all fronts. First, its old foe – the informal channels – is not relenting. And peer-to-peer (P2P) transfer is rearing its ugly head in readiness for what could be apocalyptic.
At a forum on the country’s economic prospects, the Chief Economist of PwC Nigeria, Dr. Andrew Nevin, said human capital, not oil, is the country’s largest export. A recent study by Bloomberg validated Nevin’s argument, picking Nigeria as the leader of countries with the most outstanding migrant workers across the globe. Nigeria was followed by Pakistan and Canada.
On the strength of its migrant workforce advantage and a culture that supports black tax (a term of South African origin that refers to the financial support expected of black working-class individuals by their families), the country’s yearly remittance is conservatively valued at $34 billion. But the country rarely comes close to realising this figure, going by historical data. But that is less a concern than the consistent reduction in the amount received via the official window in the past few years.
In 2018, the country received $24.3 billion. This slid to $23.8 billion the subsequent year and took a major cut to $17.2 billion last year. Remittances to sub-Saharan African countries improved by 2.3 per cent last year but the regional performance was blighted by Nigeria’s 28 per cent fall, resulting in the region’s overall 12.5 per cent loss.
To reverse the trend and get more value from the country’s exported vibrant workforce, the Central Bank of Nigeria (CBN), in March, unveiled the Naira for Dollar Scheme, an incentive that rewarded recipients of international money transfer with N5 for every dollar received. The policy, which is in its sixth month, has not done much to reverse falling diaspora remittances.
In the first quarter (Q1) of the year, Nigeria attracted $4.2 billion in remittances, which was 24 per cent short of $5.6 billion received last year in the corresponding period. Pakistan is better off in remittance receipts than Nigeria even though the latter ranks higher in terms of migrant workers’ profile.
Pakistan, whose diaspora remittances hit $26 billion last year, has attracted more people to its official remittance channel owing to its cost advantage. The country has some of the lowest prices of remitting globally. For instance, it costs 2.59 per cent to send $200 from the United Kingdom, 2.9 per cent from the United Arab Emirates (UAE) and 3.9 per cent from Singapore in the last quarter (Q4) of last year compared with an average cost 8.2 per cent sub-Saharan migrants paid to wire money home.
High cost has been an incentive for the popularity of unsafe informal channels in the remittance ecosystem of Nigeria and other African countries. Now, the attraction of digital money is stretching the challenge further. As digital currencies mainstream, an increasing number of users are exploring P2P for remittances.
Data by Chainanalysis, which tracks blockchain activities and assets movement, says Africa received $105.6 billion worth of bitcoin and other cryptos between July 2020 and June 2021. It showed that a large chunk of the amount is remittance payments, which have grown remarkably since April 2020.
These question the effectiveness and competitiveness of strategies created to grow the official remittance window, which is required to increase the country’s external reserves and stabilise the naira – a currency that is currently on an Intensive Care Unit (ICU). Market players and economists have raised questions on the appropriateness of the supply management framework and options for realigning the strategies with emerging market realities.
“If Nigeria can manage remittance effectively, it will add 0.4 per cent to our GDP growth yearly. That is very significant. But you know where our problem is, those remittances, unlike Pakistan and other countries that get remittances, a lot of the dollars don’t come into the FX market in Nigeria. They remain outside there, and this is the pattern. Someone wants to send money to his or her family here in Nigeria. This person has $10,000 in the U.S. and wants to give the naira equivalent to his family member here in Nigeria; ordinarily, the way it works in other countries is that $10,000 will come into the FX market within Nigeria, and become a boost to supply here.
“But the reality is that in Nigeria’s situation, the dollar doesn’t leave where it is. The person that provides the naira equivalent here would rather keep the dollar equivalent outside there, so it doesn’t come into the FX market in Nigeria. So, we don’t get the full benefit of diaspora remittances here in Nigeria, despite that we are top in terms of benefitting from migrant workers,” Managing Consultant of B. Adedipe Associates Limited, Dr. Biodun Adedipe, noted in a recent interview.
Over the years, the international money transfer operators (IMTOs), majority of whom are foreign organisations, have seen the remittance business as their exclusive right, an attitude that has fueled several anti-market practices for years. The CBN governor, at the outset of the current remittance policy that allows recipients to be paid in foreign currencies, admitted that the IMTOs and their agents were more interested in taking the arbitrage from different FX markets than deepening the market.
Perhaps, it is time to take the reform of the remittance business a step further. And Adedipe said Bureau De Change (BDC) operators, whose role in the FX market is currently undefined, may have to be given a bite of the $34 billion remittance market as the country seeks fresh policies to make the market competitive. President of the Association of Bureau de Change of Nigeria (ABCON), Dr. Aminu Gwadabe, said this position aligns with global practice.
He said that the BDCs remain at the centre of economic development and have the capacity to attract needed capital for the development of the Nigerian economy and deepening of the forex market. He maintained that diaspora remittances remained a cheap source of funding economic growth and development as they attracted no interest.
“Also, BDCs are supposed to buy from travellers coming into Nigeria, whether they are foreigners or they are Nigerians who did some offshore jobs and were able to make some money and return with it in foreign currencies. BDCs are also expected to operate at a two-way rate, then in response to what they have told you, you will now disclose whether you want to buy from them or sell to them. The operators are also expected to be in tune with market dynamics; be able to fix their rates within the recommended commissions in such a way that is competitive in that market. Other issues include customer service, relationship management and commission, which must be within market range,” Gwadabe observed.
He insisted that BDCs, having supported the growth of the economy and FX stability over the years, desire to be given a role for improved access to FX. He said the success of BDCs was not limited to favourable rates but access to multiple streams of forex earnings to deepen the market, keep the naira stable and boost the economy.
“Nigerian BDC operators have identified with the immense opportunities presented by diaspora remittances and want to play a greater role in attracting more foreign capital into the economy. This is because remittances are known to help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially, drive economic growth,” Gwadabe maintained.
On how the BDC integration would be firmed up, the ABCON boss went on memory lane: “BDCs buy foreign currency from remittance recipients and sell to Nigerians who want to travel abroad. The reason for establishing these institutions in 1989 was to broaden the forex market and improve accessibility to hard currency. The CBN supervises and issues operational guidelines for BDCs. In March 2006, Nigeria had 293 licensed BDCs which have risen to over 5,500 operators today. This development means that BDCs are willing and ready to do the remittance business,” Gwadabe said.
The World Bank and the International Monetary Fund (IMF) have embarked on a campaign to address the high cost of remittances to sub-Saharan Africa on the ground that the funds are critical for the survival of poor households and reducing poverty.
The Managing Director of IMF, Kristalina Georgieva, at a forum on digital currency, said the adoption of stable coins was crucial to reducing the cost of remittances in developing countries and preventing a “digital divide”.
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