Nigeria: A Remittance Revolution?

Nigeria remains the largest recipient of remittances in Africa and the seventh largest recipient among low and middle-income countries (LMICs). 

Recognising this, the Central Bank of Nigeria (CBN) has in recent times been designing policies to encourage further inflows of the foreign currencies. 

CBN Governor, Mr. Godwin Emefiele, said reforms to increase diaspora remittances into the country will support the economy and help reduce the impact of the COVID-19 pandemic.

He said if the country could have inflows of about $10 billion to $15 billion, this could have a significant effect on the economy amidst the current fiscal constraints.

The central bank has been insisting that all diaspora remittances must go through the deposit money banks rather than mortgage or fintech institutions.

The CBN governor said: “Since I became the CBN governor, I have been hearing about the size of diaspora remittances; some say $20 billion, in fact some say it’s about $30 billion. Honestly, I have been looking for the $30 billion or $20 billion, I have not seen it.

“But this time I have decided that I will focus to see those billions of dollars. You know what, I am not only expecting $20 billion, if we get even up to $10 to 15 billion, I can tell you it can help the Nigerian economy.

He of course understands the value that Nigerian diaspora intervention has and could bring in revitalising an economy who have experienced significant issues relating to the hard currency market. 

Some analysts provide their own predictions on this sector:

To compare, Pakistan, Indonesia and others generate average of $2 billion monthly in diaspora remittances. 

PwC estimates that migrant remittances to Nigeria could grow to US$25.5bn, US$29.8bn and US$34.8bn in 2019, 2021 and 2023 respectively. 

Over a 15-year period, it expects total remittance flows to Nigeria to grow by almost double in size from US$18.37 billion in 2009 to US$34.89 billion in 2023. 

The growth in remittances is subject to global economic forces and many factors will determine whether those volumes can be reached or potentially exceeded. With the growing urgency of focus on fintech innovation and the need for regulations to come up to speed to support competition in order to reduce cost of transfers, thereby offering consumers more options, it is quite conceivable those numbers could go up.

There is also the notion that much of this “recorded” data from sources such as PwC do not account for much of the remittances that will be done through informal channels. 

There is also the boom which Nigeria in particular during the Covid-19 crisis saw and does see in Cryptocurrency as an alternative to send and receive monies. 

The challenge for the CBN as for many regulators is now speed to market to support or compete or complement the emergency of decentralised innovation (via CDBCs).

The World Bank forecasts global growth to slow to 2.6% in 2019.

The CBN also emphasised the need to introduce transparency in the administration of diaspora remittances.

Some other measures introduced recently included the granting of unfettered access to forex from Diaspora and other money transfer remittances. 

The policy allows beneficiaries of Diaspora remittances through International Money Transfer Operators (IMTOs) to henceforth receive such inflows in the original foreign currency through the designated bank of their choice.

The central bank had explained that the new regulation was part of efforts to liberalise, simplify and improve the receipt and administration of Diaspora remittances into Nigeria.

Those schemes referring back to my comments over the rise of crypto and other channels are deemed necessary for a better Nigeria but i am not sure that is a notion supported by those living abroad and many of those in the market that have a mistrust towards old school institutions run by an older generation who seek in peoples eyes to retain control while a younger and vibrant generation seek alternatives to that “better Nigeria”.

Digitisation has forced the hand of many regulators and the CBN itself has embarked on various promos.

Innovate or Try.

In order to encourage Diaspora remittances inflow through the right channels, the central bank last month introduced the “CBN Naira 4 Dollar Scheme.”

It is an initiative aimed at incentivising senders and recipients of international money transfers.

Commercial banks in the country have since been implementing the initiative.

The CBN in a circular dated March 5, 2021, signed by A.S. Jibrin, on behalf of the Director, Trade and Exchange Department, stated that the initiative which became effective on March 8, 2021, would end on Saturday, May 8, 2021.

In line with this initiative, all recipients of diaspora remittances through CBN’s licensed International Money Transfer Operators (IMTOs) would be paid N5 for every $1 received as remittance inflow.

The apex bank had explained in the circular, “The CBN shall through commercial banks, pay to remittance recipients the incentive of N5 for every $1 remitted by sender and collected by the designated beneficiary.

“This incentive is to be paid to recipients whether they choose to collect the United States dollar as cash across the counter in a bank or transfer same into their domiciliary account. In effect, a typical recipient of diaspora remittances will at the point of collection, receive not only the USD sent from abroad, but also the additional N5 per USD received.”

Providing more insight into the new policy, Emefiele said it would offer Nigerians in the diaspora a convenient way to send remittances, adding that it would also aid diaspora investments.

He explained, “Our policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria.”

However, Emefiele said, “Yet, the introduction of the new policy presented new challenges, as operators and remittance service providers were initially unable to integrate with the agent banks.”

He said the central bank would continue to work to resolve the intermittent interface challenges in the market.

Nairametrics reported however that beyond the integration challenges of some of the regulated IMTOs (to date 46 have officially been endorsed by the CBN as being fit for purpose to operate while others remain very much on the radar as non compliant and i am sure will be forced towards ensuring their licenses are in order).

It was disclosed that the average cost of sending $200 worth of remittance to Nigeria from the US was about 4.7 per cent, saying studies have shown that even a one per cent decrease in cost of sending remittance can result in a significant boost in inflow.

He also disclosed that the central bank had been engaging the IMTOs and the banks to ensure more convenience in fund remittance. 

Convenience is part of the challenge but a more open regulatory market to ensure more licenses, more competition and better support will no doubt help the market move.

The CBNs effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, provided to the bank accounts of beneficiaries, following receipt of remittance inflows seems according to Nairmetrics to be working:

It is reported that the Naira4Dollar scheme attracted over $40 million from the diaspora in one week. This if true would be a $6 million increase from previous weeks prior to the promotion. Banks are also opening domiciliary accounts automatically for recipients in readiness for receipt of those diaspora funds. 

The belief that this will eventually improve liquidity but when you consider the exchange rate before and after the policy was introduced it is clear that this promo alone while it is perhaps a start towards improving diaspora opportunities, there is a long way to go.

It is the opinion of Cloud Africa that fintechs must take a lead on not just providing technology to create competition but also to develop and utilises high level relationships with global governments so that a more concerted effort is made to target those in the diaspora.

The UK itself with recent cuts to foreign aid will see a 58% drop to Nigeria. This then must be countered by ensuring better support and more investment into fintech and IMTOs who may go a long way to filling the gap. 

Changing policies and dynamics post Brexit, post Pandemic has created a number of challenges for developed and developing markets but there is a hope that the formation of the AfCFTA and a genuine interest from global investors to find new opportunities will see more activity and hopefully more public-private partnerships (PPP)

Invest in Africa, Invest in Nigeria.

70% of remittances go into family support and only 30% of the inflows go into investments and in that 30 per cent, a bulk of it goes into real-estate.

Nigerians in the diaspora indicated would be useful for them is to undertake more investments into Nigeria in specific engagements that promote investment opportunities led by the private sector. 

From government, what they asked for was improvement in the enabling business environment.

Has this been the case? 

Are the Nigerian government really doing enough? 

How can it be better improved?

Back to my point, no party should rely on any one government to create a welfare state or balance - history speaks for itself. However there is a huge opportunity for those PPPs to benefit from a moment preempted by the Covid crisis.

For several years, the remittances from Nigerians in diaspora exceeded Nigeria’s oil revenues, which translated sometimes as high as six per cent of GDP. 

However the crisis exasperated the reliance on oil and this happened:

The President of Afreximbank, Dr. Benedict Oramah, suggested ways to boost diaspora participation in the Nigerian economy through specialised funds and accounts that would encourage them to save their long-term funds in Nigeria.

He said, “Africans and Nigerians can consider allowing special diaspora foreign currency accounts with higher interest rates than the US or Europe and with an inbuilt guarantee against potential losses from bank failures and country risks.

He also pointed out that a properly structured diaspora fund that can be issued with eligible bond holders encouraged to open coupon payment accounts locally in Nigeria to enable them cover local expenses and support their relatives at home.

By creating the requisite environment, diaspora remittances could become a catalytic force that would break the development barriers and rapidly transform the country and the continent.

And Finally…

We at Cloud Africa believe that the future of development in Africa and the willingness of entrepreneurs who remain the bloodline for creativity and new opportunities for the market must be better supported by all stakeholders.

Interventions we have noted by the CBN goes a long way to proving at least to myself that the market remains firmly entrenched in the past and what Covid has challenged is in order to reach that last mile, a liberalisation in how financial services are made more affordable and accessible must happen.

The Twitterati may not be right but look at Twitter as an example of investing money and resources into West Africa. 

Many are a quick to point out how the most populace market in Africa presents the most opportunities but then its neighbours across the border in Ghana have shown much of the continent what innovation coupled with strong governance and even stronger interventions by its diaspora can mean for development.

Beyond those “Jollof wars” there are many like minds, innovators, investors that have a genuine appetite to want to be part of the success stories the frontier markets may eventually bring.

Remittances currently remain a tantalising opportunity to connect those in the diaspora with their loved ones and opportunities back to their roots. 

Cloud Africa for one believes that to ensure parity, the market for IMTOs needs more competition beyond the WorldRemits and Remitly’s of this of this world. 

Arbitrage has been a factor that has for years lined the pockets of IMTOs. However i am of the view that it is possible to give and contribute towards meaningful projects and benefit from a sustainable business where we all reap the benefits and importantly we see the growth of those that after all are the future.

Technology is the glue, its the people and their hearts and minds that will see Nigeria and Africa thrive. 

WeGive

For diaspora inquiries into WeGive, a remittance platform designed for investment and development funding for projects in Africa contact [email protected]

We are hopeful that we can change the narrative and improve that last mile flow and while we intend to serve families and friends, our overriding goal is to ensure funds flow towards last mile projects that will drive increase opportunities for all.

As a founder and someone who has been doing business across the continent for many years, i do believe the market is wildly skewed against startups and i do believe the only way to ensure competition is by allowing that competition to succeed.

It is the role of governments, regulators, investors and of course us, the innovators and entrepreneurs to make sure we succeed.  

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