The size of remittances from Nigerians in the diaspora has come lately into sharp focus with renewed interest in their potential impact on the economy. Amid a controversy over the actual size of the inflows, ranging from the official $2.6 billion to $25 billion estimated in 2019, it is important to focus on how the country can maximise the benefits for poverty reduction and investment. The crux is that diaspora inflows have become major economic drivers elsewhere and all efforts should be made to deploy this income stream for national recovery here too.
Recent estimates by the World Bank indicate that diaspora remittances into the country will likely rise to $25.5 billion by year end, up from $22 billion in 2017 and $23.63 billion in 2018. PwC, the multinational consultancy, projects remittances to hit $29.8 billion in 2021 and $34.8 billion by 2023. Though these come with caveats that growth is subject to global economic forces and most through informal channels, the potential positive impact of such inflows to our tottering economy are enormous. Put in context, inflow in 2018 was over 80 per cent of the federal budget, over 11 times the value of foreign direct investment inflows into the country that year, while inflow in 2017 was 7.4 times larger than the total $3.4 billion foreign aid received in 2017 and 6.1 per cent of GDP.
Concerns – over the lack of visible impact of such a large income stream on poverty reduction; the forex market into which the Central Bank of Nigeria injected $40 billion to “defend” the naira; and public and household expenditure – have been met with a stunning rebuttal by the CBN. The apex bank clarified that only $2.6 billion came in officially from Nigerians living abroad, underscoring the largeness of the informal sector. Although the International Monetary Fund reckons that inflows through informal channels could usually be higher by 45 to 65 per cent than the formal, the discrepancy also reflects the divergence between the official UN figure of 1.3 million emigrants from Nigeria in 2017 and the estimates of 17 million and 15 million respectively given by the National Commission for Refugees, Migrants and Internally Displaced Persons and unofficial sources.
In any case, remittances play a crucial role in developing economies, with significant welfare implications, especially poverty alleviation. But unlike some other countries such as India that retained its No.1 spot as the largest recipient of remittances in 2018 with $79 billion, China ($67 billion), Mexico ($36 billion) Philippines ($34 billion) and Egypt ($29 billion) that all deploy the funds into boosting foreign reserves and exchange rate stability, Nigeria, said Anthony Ani, who as Finance Minister 1994-1998, initiated the policy facilitating international money transfers and the berthing of MoneyGram and Western Union here, “is the only country in the world re-exporting its remittances.”
This is the heart of the matter. A Bank of India report says the cost of sending remittances is influenced by several factors – destination; transfer method; payments infrastructure; size of remittance; extent of market competition; and the prevailing regulations in both source and destination countries. It is argued that the high costs of money transfers reduce the benefits of migration. It is recommended that regulatory authorities should renegotiate exclusive partnerships and let new players operate through national post offices, banks, and telecommunications companies in order to increase competition and lower remittance prices. The CBN Governor, Godwin Emefiele, has to put an immediate end to this anomaly and stop the current prevailing practice where the banks warehouse remittances abroad and pay recipients at home in naira at well below the parallel market rates. This is a gross injustice that not only cheats the customers, but also keeps the huge funds from having moderating impact on the forex market and rates. According to UNCTAD, for every “$2 billion in remittances into Mexico, domestic production rose by $6.5 billion; 30 per cent of remittances are deployed in investment and construction in Ghana; remittances helped create entrepreneurs in Egypt, and enabled households in Guatemala to invest in housing and education.” CBN and the banks should ensure recipients open domiciliary accounts to receive transfer directly into them and change where and when they wish.
The CBN should review its Outward Money Transfer Service that curiously allows the re-export of remittances. PwC also recommends drastic reduction in the cost of remittances from the average 9.4 per cent today prevailing in sub-Sahara Africa. This is made more urgent by the wide margin between official receipts and estimates of inflows.
Remittances, says UNCTAD, bring value to their mother countries. “They result in better education, higher foreign currency inflows, economic stability, better health and an inflow of new investments.” Migrants make important economic, developmental and cultural contributions to sending and receiving countries and impact positively on poverty reduction in developing countries, substantially contributing to the achievement of the Millennium Development Goals. Like UNDP recorded remittances to have lifted 300,000 to 400,000 persons from poverty in Kyrgyzstan in the five years to 2014, reduced poverty by 11 per cent in Uganda and some countries used it to service debt and raise forex sources, Nigeria should ease restrictions and return to the rules put in place by Ani to encourage the ever rising number of Nigerians abroad to remit money home and available as an important source of foreign exchange. Apart from cultural factors and high number of its citizens abroad, the World Bank’s Migration and Development Brief says India has reduced cost of remittance to as low as two per cent, less than the UN’s Sustainable Development Goals target of three per cent and much less than the global average of 7.1 per cent. Remittances greatly boosted the number of adults with bank accounts in India and other Asian economies.
Underscoring its importance in achieving the SDGs, the UN set aside June 16 of each year as International Day of Family Remittances, while Nigeria floated a $300 million diaspora Bond that was oversubscribed by 130 per cent, demonstrating the strength of the Diaspora. The crucial factor of trust should be developed to encourage more remittances through official channels. The CBN should stamp out profiteering by banks. As the International Fund for Agricultural Development says, most remittances go to rural areas where poverty is highest – between 51 per cent and 80 per cent in the Asia-Pacific area – Nigeria should develop a comprehensive policy which, according to PwC, “harnesses remittances into generating capital for productive investments,” grow SMEs and help build local infrastructure.
Efforts should include introducing cutting-edge technology to make greater use of mobile money platforms, cut costs and minimise the physical contact that enables corruption and illegal brokerage to fester. This, says IFAD, will help drag millions out of poverty.