The recorded remittance flow to developing countries was estimated at $406bn in 2012 with Nigeria topping the list of recipients in Africa with $21bn (N3.28tn). Remittances from Nigerians in the Diaspora have, in the last decade, become a huge foreign exchange earner for the country with its concomitant positive effects on the economy not fully tapped yet, reports Bukola Afolabi
Despite record-breaking increases in remittances coming into Nigerian and many other African countries in recent years, local enomonies are yet to feel the impact of the surge.
The recorded remittance flow to developing countries is estimated to reach $406bn in 2012 with Nigeria topping the list of recipients in Africa with $21bn (N3.28tn). Another report prepared by the Migration and Remittances Unit of the World Bank’s Development Prospects Group stated that Nigeria would top the list of recipients of officially-recorded remittances for 2012 with a likely $21bn, a 91 per cent increase over the $11bn remitted to the country last year.
The bank said remittances to developing countries were projected to grow by 7.9 per cent in 2013, 10.1 per cent in 2014, and 10.7 per cent in 2015 and to reach $534bn in 2016.The World Bank pointed out that it had revised its methodology to estimate remittances for Kenya and Nigeria. It said, “in the past, data on Kenya’s remittances reported in the IMF Balance of Payment’s (BoP) statistics were significantly smaller than data cited by government officials. By contrast, in the past, Nigeria’s data reported in the IMF BoP showed a significant upward revision, raising questions as to the definition used to maintain consistency with the previous data series. We estimated remittances to Nigeria by applying the growth rate of the new data series to the old data series.”
According to Ayo Teriba, an Economist, Nigeria has a strong and growing Diaspora community, especially in the US, Europe and Asia, many of whom are responsible for this remittance flows.
Quoting the recently updated World Bank brief on global migration and remittances.
“The top recipients of officially recorded remittances, estimated for 2011, are India ($58 billion), China ($57 billion), Mexico ($24 billion), and the Philippines ($23 billion). Other large recipients include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.”
Teriba added that the negative aspect of it is that Nigerian youths, after receiving training in Nigeria and use their skills to develop the country, resort to travelling abroad to work. Diaspora bonds can be a powerful financial instrument for mobilising Diaspora savings to finance specific public and private sector projects, as well as to help improve the debt profile of the destination country.
As for Indians, they get their remittances through the Diaspora Fund. Nigerian government should capitalise on their citizens who are based abroad, because this figure is for private individuals, but government should provide saving instrument for them so that the government can benefit from Nigerians in the Diaspora, said Teriba.
The World Bank report indicates that in 2012 Nigerians living abroad remitted home £13.3 billion, ranking first in Africa and fifth in the world, behind India and China, with each receiving more than £38 billion, Philippines (£15 billion), and Mexico (£15 billion).
The updated data showed that in 2010 it was estimated that remittances flow into Nigeria from its people abroad would be $9.9B, when the actual figures came in, it was over $10B, at exactly $10.045B.
In terms of the share of GDP of the remittances flow into Nigeria, while it was estimated at 4.1% last year, it was actually 4.5% in real terms afterwards.
Other top recipients of remittances among developing countries are India ($70bn), China ($66bn), the Philippines ($24bn) and Mexico ($24bn). “Our estimate of remittance flows for the current year is based on available monthly and quarterly data released by central banks and the International Monetary Fund’s balance of payments. We estimated growth for the remaining period of 2012 based on the year-to-date growth rate in 2012,” the report stated.
The size of remittance flows to developing countries is now more than three times that of official development assistance. For Nigeria, the size of its 2012 remittance inflow amounts to about 7.7 percent of 2012 Gross Domestic Product (GDP) and nearly 50 percent of CBN foreign exchange reserves. The cost of sending remittance is a key driver of remittance flows, World Bank research shows. Consequently, reducing remittance cost has been identified as a key policy objective to facilitate these flows.
The global average remittance price has declined over the same period from 9.81 percent in 2008 to 8.96 percent in the third quarter of 2012. Sub-Saharan Africa is the most expensive region to send remittance to, with a transfer costing (in third quarter of 2012) about 12.4 percent of the amount transferred. This is almost twice the corresponding figure of 6.5 percent for South Asia.
Mobile phones have also been used to facilitate international remittances. Services such as mobile cash-out allow households to receive money in accounts linked to their mobile phones (mobile wallet) and subsequently use it to conduct mobile transactions or cash-out the money at an agent. Mobile cash-in services allow migrants to send money from their mobile wallet. Other branchless cash-out services allow migrants to send money to a cash card held by recipients, who can then withdraw funds at ATMs or make purchases with the card.
As at early-2012, only 20 percent of 130 mobile banking operators worldwide offered international remittance services. Traditional money transfer operators, such as Western Union and Moneygram, have also partnered with some of these providers to offer international remittance services via mobile phones.
Sadly, Nigeria is not a major player in this category. Cross-border mobile remittances have not taken off due to a variety of regulatory and operational challenges. Anti-Money Laundering (AML), Combating Financing of Terrorism (CFT) and “know-your-client” requirements also exacerbate the regulatory hurdle for mobile money operators that raise cost and operational burden.
Mobile remittances fall in the regulatory void between financial and telecom regulations, a reality which creates regulatory uncertainty for potential market entrants. Many central banks do not allow non-bank entities to conduct cash-in and cash-out services. Mobile remittances will not take off until central banks and telecom authorities come together to craft rules that facilitate branchless banking.
According to Femi Olumide, an analyst, “Non-monetary forms may include clothing, medicine, gifts, dowries, tools and equipment. In recent years, remittance flows rank behind foreign direct investment (FDI) as a source of external funding for developing countries. Global flows of migrant worker remittances were estimated at US$182 billion in 2004, up 5.7 percent from their level in 2003 and 34.5 per cent compared to 2001 (World Bank, 2004).”
The forty-two-year-old man adds: “It is estimated that migrant remittance flows to developing countries now surpass official development aid receipts in many developing countries. Migrants’ remittances are currently ranked as the second largest source of external inflows to developing countries after foreign direct investment. Over the last decade, Nigeria has been the single largest recipient of remittance in Sub-Saharan Africa. Nigeria receives between 30 percent and 60 percent of remittances to the region.’’
He continued: “Remittances from Nigerians in various parts of the world was USD 2.8 billion in 2004 (International Monetary Fund (IMF), 2004), ranking second only to oil exports as a source of foreign exchange earnings. Nigeria was among the top 20 developing countries recipients of remittance in 2003. Commercial bank executives report that in 2006 the recorded flows were estimated at US$4.2 billion dollars, representing 700,000 transactions and a 30 percent increase from 2005. In 2009, Nigeria received $10 billion in remittances from citizens living in the Diaspora and she is currently ranked first among the top 10 remittance recipients in 2010 in sub Saharan Africa.”
The large bulk of remittances in Nigeria are person-to-person flows mainly from the United States, the United Kingdom, Italy, and other Western European countries. Most transfers are through Money Transfer Organisations (MTO’s). Informal sources include relatives and town unions and individuals entering Nigeria from their domicile foreign countries among others. Estimate of internal remittance is not known.
Despite the ever-increasing size of remittances, both internal and international, there has been little effort to analyse its effect on economic development, especially on poverty in Nigeria. As a result, policy measures that will enhance putting remittances to their best uses do not exist. The situation persists in spite of the recognised fact that a well-articulated remittance management regime can aid growth and development by providing much needed foreign exchange, and serve as a palliative for its balance. “There are, however, some serious downside risks to the bank’s outlook for international remittance and migration flows. Persistent unemployment in Europe and the U.S. is affecting employment prospects of existing migrants and hardening political attitudes toward new immigration. Volatile exchange rates and uncertainty about the “direction of oil prices also present further risks to the outlook for remittances.
“The bank has established a ‘Task Force on the Implementation of Diaspora Bonds to facilitate the provision of technical assistance to developing country governments.’ The bank now houses considerable expertise in this area and we look forward to working with client governments in developing alternative sources of financing for development projects,” said Ratha.”
The Director of the Centre for Demographic and Allied Research (CDAR) of the University of Nigeria (UNN), Nsukka, Professor Cletus Agu, claims that Nigeria accounts for about 60 per cent of all remittance inflows to sub-Saharan Africa.
He stated this in Abuja recently at the research dissemination workshop on ‘International Remittances, Poverty and Inequality: The West African Case (IRPI-TWAC)’, where stakeholders deliberated on the preliminary findings on the study supported by International Development Research Centre (IDRC).
Agu, who is also the head, Department of Economics of the nation’s first indigenous University, affirmed the World Bank’s report.
Stakeholders at the workshop also agreed with the study, which provides answers to these core questions using three West African countries, namely Nigeria (the most populated nation in West Africa), Ghana (with rich migration data-base) and Cote d’Ivoire (a Francophone African country). These issues are studied based on conceptual frameworks drawn from economics, demography, sociology and anthropology, history and geography.
The World Bank report also indicates that as a share of GDP, the largest recipients in Africa are Lesotho (28.5 percent), Togo (10.7 percent), Cape Verde (9.4 percent), Senegal (9.3 percent), and The Gambia (8.2 percent).
While the report deals with formal remittances, it is believed that a huge chunk of money are also being informally remitted to Nigeria and other countries.
Nonetheless, the report observed that “formal channels for remittances from outside Africa and within the region are heavily dominated by money transfer companies, particularly Western Union.”
For the Sub-Saharan African countries, according to the report, only about 2 percent of households receiving remittances from outside Africa use banks; “the share is slightly higher in Uganda (12.5 percent), Kenya (16.2 percent) and Nigeria (22.3 percent).”
Also, Biodun Ogunyemi, a banker observed that “the role of other intermediaries including post offices, microfinance institutions, savings and credit cooperatives, and new technologies such as Internet transfers and mobile money transfers are even more limited for remittances from outside Africa,” from where it is believed most of the remittances flow to countries like Nigeria are coming.”
Recorded remittance flows to the African continent are similar in size to official aid flows, according to the report. For instance, they are several times larger than official aid to North Africa (3.3 percent of GDP versus 0.6 percent of GDP) and two-thirds the size of official aid flows to Sub-Saharan Africa (2.2 percent of GDP versus 3.7 percent of GDP).
Equally, remittance flows in many African countries, it was further disclosed, “are larger than private capital flows, such as FDI and portfolio debt and equity flows.”
It was also noted that while evidence on the implications of remittances for inequality is less clear, “households that receive remittances, especially from outside Africa, may have been richer to begin with (allowing a family member to migrate in the first place); they may also have higher incomes because of migration and the receipt of remittances.”
The report said by discouraging exclusive partnerships—for example, between
banks and international money transfer agencies—remittance costs would reduce, “benefiting both migrants and remittance recipients.”
It stated that this discouragement of exclusive partnerships, has already led to policy changes in some African countries and has been implemented by the Central Bank of Nigeria and Rwandan authorities.
Indeed, remittance costs have fallen steadily from 8.8 percent in 2008 to 7.3 percent in the third quarter of 2011 due to increasing competition in large volume remittance corridors such as UK-Nigeria and UAE-India. However, remittance costs continue to remain high, especially in Africa and in small nations where remittances provide a life line to the poor.
Globally, the World Bank said while the economic slowdown is dampening employment prospects for migrant workers in some high-income countries, global remittances, nevertheless, are expected to stay on a growth path and, by 2014, are forecast to reach $515 billion.
Of that, $441 billion will flow to developing countries, according to the latest issue of the Bank’s Migration and Development Brief.
