On the CBN’s ‘Naira 4 Dollar Scheme’

By Adeboye Fajemisin

The CBN recently released a circular informing all banks, International Money Transfer Operators (IMTO) and the general Public that it has decided to start a “Giveaway” scheme aimed at encouraging Nigerians in the Diaspora to continue remitting money and even start investing at home. This means if Adekunle who lives in Boston, MA sends $1,000 to his Parents in Lagos, in addition to receiving the USD in Cash or transfer to their Domiciliary account, they also get extra NGN5,000 credited to their Naira account or given to them in cash.

The policy will encourage Nigerians, especially those abroad to send more money home possibly surpassing the historical $23billion in recent years.

Nigerians will always send money home to their families, whether we do bonanza or not. Nigerians in Diaspora have become more responsible for Nigerians in Nigeria than the Nigerian government. A nation described as the poverty capital of the world, where more than half of its population live in poverty; 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.

The policy will solve the forex supply issues faced by a rather notorious FX consuming economy.

Absolutely, a bird in hand is worth more than two in the bush, and I am a fan of going after low hanging fruits before reaching for the ones requiring more efforts. However, the Nigerian forex problem stems from something way bigger than remittances from abroad, which is Nigeria’s Balance of Trade (BOT) and Balance of Payment (BOP).

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

The policy will encourage an over-supply of forex to the economy thereby weakening the black market and stabilizing the Naira.

Truth is, there can never be an oversupply of forex in a nation that consumes more forex than it earns. Indeed, our aunties and uncles in the village probably consume as much forex as the city people do, After all kerosene for cooking is imported. The country long lost productivity and the ability to earn the much-needed forex only resides in oil and gas.

Now let us assume for a minute that it is true that all the remittances coming into Nigeria makes it through the official system into the banks with CBN having full visibility. However, the new policy has given Nigerians the option of collecting the dollars (in fact, the IMTO’s are mandated to pay dollars to recipients through the banks). My question is that how exactly is the dollar remittance going to improve our BOP deficit?

This policy would only further strengthen the black market by making legitimate dollars flow to it. Given the fact that we still have massive BOP issues, banks struggling to meet their obligations on already negotiated International trade instruments like Letters of Credit, Bills for Collection etc., and importers are tired of losing money by paying high interest on these trades because they are unable to convert their sales proceeds to dollars, will once again look to the almighty black market, which is already heavily funded by illicit dollars and now even legitimate dollars for rescue.

It is indeed no news that many unavoidable imports are tagged “unqualified” for CBN dollars leading those importers to source forex from the black market. It is also no news that the CBN has not been able to meet the demand for the “qualified” transaction and this action to further supply the black market with legitimate dollars only makes it worse.

I do not see how this action stabilizes the naira or weakens the black market.

The policy will clamp down on arbitrage seeking IMTOs who do not declare the real remittance figures in the hope of benefitting from round-tripping etc.

This is laudable, however frivolous. It has long been evidenced in Nigeria that the real “round-trippers” are not enjoying that from external dollars, but more from internal dollars through some of the policies of the CBN like having multiple exchange rate policies etc.

I am in support of any policy that ensures foreign IMTO’s don’t take advantage but play fair business; however, our economy is really not robust enough to cater to completely eradicating this.

The policy intends to make it cheaper for Nigerians abroad to send money home, removing any bottlenecks in exchanges by making it possible that “what you send is what you receive” and the “Naira 4 Dollar” could replace your transfer fee.

Bonanzas are good. A Nation that ranks 152 out of 157 on the Human Capital Index and where 40% or more live below the poverty line (Reuters) needs all the bonanzas it can get. However, this policy will not, in any way make money transfer cheaper and/or easier for Nigerians in Diaspora; neither will it encourage remittances through the formal channels. In fact, I believe that more remittances happen via non-formal routes than the formal routes in any case.

Foreign Direct Investments (FDIs) would play a major role in encouraging productivity in the country, but it is evident that those FDIs are not coming for now. One begins to wonder why. It was reported that FDIs have decreased by over 48% since 2019. Foreigners with the money no longer trust the economy, human rights are at its low, insecurity is the order of the day, economic and monetary policies are erratic, the education and health sector is as good as dead, the government’s body language towards corruption is not clear, Banks are afraid of the CBN so much instead of a regulatory think-tank relationship, it’s almost an abusive command and obey situation.

Remittances from abroad would not scratch the surface of our BOP requirement, In fact, Nigerians in Diaspora are not sending money home to invest, they are sending money home, so their relatives won’t die of hunger in a nation where poverty is in a romantic relationship with many of its citizens.

I commend the effort of the CBN governor and his team; it is not easy renovating a sky-scrapper when the foundation has already been significantly eroded, and the structures largely in bad shape. He has a very difficult job at hand.

It also appears that the job of saving the Nigerian economy has been largely left in the hands of Godwin Emefiele, as it appears Madam Zainab Ahmed is busy ensuring Nigerians receive their COVID-19 relief palliatives in their bank accounts.

Nigeria’s Balance of Payment challenges cannot be resolved without looking at the fundamentals that got us here and addressing them.

I understand this is a pilot project, but the CBN should completely forget about the idea of “Naira Giveaway”. If we had that much money for bonanza, we could as well channel it towards productive ventures that may eventually contribute to alleviating the bigger problems. The CBN can as well give the money towards agriculture, create an irredeemable convertible loan structure for start-ups (we have thousands of them, capable of becoming unicorns in search of funding) etc. these ventures may eventually be the messiahs of our non-oil economy.

The CBN needs to adopt workshop style approach where it engages various stakeholders, banks, forums, private citizens with wealth of knowledge before coming up with landmark policies. It needs to actually start regulating and not dictating.

If the CBN wants to regulate arbitrage seeking IMTOs, that is fine and recommended. However, it should also seek innovative ways of keeping the forex inflow within the banking system. We cannot make the dollars our official currency. Citizens should only be able to collect Naira in Nigeria albeit at competitive exchange rate reflective of the economic realities. That way, the banks can make use of the dollars to settle trade exposures and further relieve the CBN of weekly forex rationing.

• Fajemisin is a company executive.