Arguably, Nigeria is Africa’s largest recipient of foreign remittances. According to a report by the World Bank, the country boasts of Diaspora remittances of more than $21 billion. This has created a huge, but untapped funds’ reservoir for an economy at the mercy of tumbling oil prices. Experts urge the Federal Government to capture the Diaspora remittances and other capital inflows into the revenue net to revive the economy. Assistant Editor CHIKODI OKEREOCHA reports.
The World Bank has estimated the value of Nigeria’s Diaspora remittance market at $21 billion. It is the largest in Africa. With the bank projecting that Africa’s foreign remittance market would hit $41 billion this year, experts say that Nigeria can leverage the huge, but untapped financial reservoir from the Diaspora to weather the current economic storm triggered by crashing oil prices in the international market.
Diaspora remittances are funds sent back home by Nigerians leaving or working abroad. According to a World Bank report, the size of Nigeria’s remittances has been rising every year over the last decade. For instance, from $16.93 billion in 2006, it rose to $20.83 billion in 2014. It, however, fell slightly to $20.77 billion last year.
According to the report, the United States (U.S), with $5.7 billion and the United Kingdom (UK) with $3.7 billion are the top two sources for Diaspora remittances to Nigeria last year.
The U.S was the largest source of remittances in the world, with outflows hitting $56 billion, followed by Saudi Arabia, from where $37 billion was remitted and Russia at with $33 billion outflows.
“At more than three times the size of development aid, international migrants’ remittances provide a lifeline for millions of households in developing countries,” said Dilip Ratha, a co-author of the report.
Ratha added that migrants hold more than $500 billion in annual savings.
“Together, remittances and migrant savings offer a substantial source of financing for development projects that can improve lives and livelihoods in developing countries,” he said.
Experts who spoke with The Nation echoed Ratha’s position on the capacity of Diaspora remittances to turn around the dwindling fortune of the economy.
Noting that remittances from Nigerians abroad can, sustain the economy, George Etomi, a Lagos-based lawyer and Director, Eko Electricity Distribution Company (EKEDC), said: “Nigeria’s foreign remittance is as big as oil revenue; it runs into billions of dollars annually.”
He argued that what is required is to create policies and measures to capture and channel the huge Diaspora funds into boosting the nation’s foreign exchange.
According to Etomi, the Nigeria’s Diaspora remittance market fall under an undocumented economy.
“It (Diaspora remittance) is an undocumented economy that sustains Nigeria; the one that the Central Bank of Nigeria (CBN) never captures its data, that’s what sustains Nigeria,” he told The Nation.
He suggested that the Federal Government should capture remittances from Nigerians living abroad to mitigate the impacts of the prevailing cash crunch.
Citing CBN’s policy that banned foreign exchange deposits before its reversal, he said such policy erode the confidence of investors and other members of the business community.
Noting that although it has been reversed, it will take some time to restore the people’s confidence in the system.
“Nigeria was not in the international clearing system for a long time. We fought our way through and having got there you now wake up one morning and say people cannot take their money. Now they are removing us from a lot of international clearing systems again thereby setting us back,” he lamented.
The lawyer pointed out that although, the policy has been reversed, its negative fallouts would linger for a long time.
“This is why we have to be more strategic in our thinking, because you know the world is now globalised; we are not an island. The need for strategic thinking has become more compelling now that oil, which is our major source of foreign exchange, is playing tricks on us”, he observed.
The EKEDC director recommended the opening of avenues by CBN to attract foreign exchange system rather than encourages Nigerians living abroad to by-pass the banking system to send money through friends and family members.
“What we should have done is create more avenues for people to have confidence, and then appeal to their sense of patriotism,” Etomi said.
Nigeria, he said, should borrow a leaf from countries such as India, China, Philippines, Israel and Kenya, among others, which have tapped into their Diaspora as a powerful resource for development.
In 2014 alone, India and China received $70 billion and $64 billion, respectively, from their expatriates.
“The amount of money our international football stars alone generates and send home is mind-boggling. I am not talking about Nigerians working in other sectors all over the world,” he said.
Indeed, the Diaspora constitutes an enormous financial and human resource which is grossly under-utilised in many African nations, including Nigeria. The World Bank, African Development Bank (AfDB), as well as foreign governments have highlighted the role the Diaspora can play in the transformatiion of the continent.
The Federal Governments can raise funds from the Diaspora to finance large scale infrastructural projects. Nigerians leaving abroad also constitute a huge source of knowledge, skills and experience which their home government can tap into.
The Philippines have a scheme to bring educated and highly-skilled citizens back to the country.
Etomi says that Nigeria can do the same by providing those in the Diaspora an opportunity to invest in projects which will contribute to the development of their home country. Areas such as health, agriculture, food processing, creative industries, Information and Communications Technology (ICT), manufacturing, security, education and training, among others, are yearning for Diaspora contributions if the authorities are proactive and strategic in their thinking.
The expectation is that the current administration would seek to engage Nigerians in the Diaspora in a more meaningful and productive manner and harness the resource available through the Diaspora in a more systematic and strategic way.
This would reverse the current trend where developments and issues around Diaspora remittances and professional contributions are loosely organised with no coordination.
To the Lagos Chamber of Commerce and industry (LCCI), part of the systematic process or coordination includes allowing forex sourced from Diaspora remittances, export proceeds, forex sales by international investors and multinational companies and forex sales by donor agencies and other non-governmental organisations (NGOs) to trade in autonomous forex market.
This, according LCCI’s Director-General Muda Yusuf, would deepen the market.
Yusuf in a statement issued in Lagos, noted that the adoption of this model would have a significant moderating effect on the exchange rate.
His words: “LCCI appreciates that these are challenging times for the Nigerian economy. The pressure on foreign reserves has intensified as crude oil prices continue to plunge. There is a resultant impact on the naira exchange rate with varying degrees of impact on all sectors of the economy.”
The LCCI chief described Nigeria’s macroeconomic outlook as a cause for concern, adding that the quality of monetary and fiscal policy responses could have a moderating effect on the impact of this negative outlook on the economy, the investors and citizens.
Acknowledging steps taken by the CBN to manage the current conditions such as the closure of the CBN foreign exchange window, termination of foreign exchange sales to Bureau de Change (BDC) operators, lifting of the prohibition of the deposit of foreign currency cash to the domiciliary accounts in the banking system, among others, Yusuf said such policy actions were inevitable.
He, however, noted that the forex market is still characterised by considerable uncertainty, which drives speculative activities and impacts negatively on investors’ confidence.
“The scope of the market needs to be clearly defined,” he insisted, listing Diaspora remittances as one of the sources that should be allowed to be freely traded in the autonomous market in order to ensure a deep forex market.
“It is paramount at this time to articulate policies that would stimulate and unlock the huge potentials in Diaspora remittances and other capital inflows into the economy. Diaspora remittances to Nigeria were $21 billion in 2014, according to World Bank sources,” Yusuf said.
Why Diaspora
remittances hold the ace
The price of oil rebounded to more than $35 a barrel, on February 4. Ordinarily, the rebound, which came after oil price hit an all-time low of $27.10 on January 20, the lowest in 13 years, should be cheery news to the Federal Government. But, that has not been the case.
To observers, the development is hardly an indication that Nigeria – Africa’s largest economy and /oil producer – is on its way out of the woods.
For one, despite the marginal gain in oil price to a little above $35 a barrel, not a few analysts say it is below the 2016 Budget oil benchmark of $38 a barrel.
Even if oil prices climb above the oil benchmark of $38 a barrel, experts say that it still will not end the revenue troubles since the diversification of the economy to non-oil sector as alternative source of revenue and foreign exchange earnings has yet to bear fruits.
However, while Nigerians await the economic diversification programme to gain traction and provide a buffer against the negative impacts of oil prices, experts believe the Diaspora remittance market could be the saving grace.
Remittances as wedge
for collapsing fiscal buffers
The fiscal buffers of external reserves and Excess Crude Account (ECA) are being depleted. The external reserves is made up of dollar proceeds from oil earning, which the CBN monetises and remits the naira equivalent into the Federation Account for allocation to the three tiers of government and then holds the dollars in reserves for those who intend to transact international businesses.
The second component is the proceeds from ECA, the funds realised from the sale of crude oil in excess of the budget benchmark that is held on behalf of the three tiers of government by the CBN. Both fiscal buffers have been collapsing since the oil price crisis began.
The ECA, which stood at $8.65 billion as at turn of 2012, hitting $10 billion by January 2013, crashed to as low as $2.2 billion by December last year, according to Finance Minister Mrs. Kemi Adeosun.
The external reserves also fell to $28.09 billion as at February 2. It was the lowest since last year. It stood at $37.3 billion in June 2014. CBN Governor Godwin Emefiele said that between July 2014 and January this year, the country’s external reserves suffered great pressure from speculative attacks, round-tripping and front-loading activities by players in the forex market. These, he said, led to a decline in the reserves to $28 billion.
The fact that the economic buffers, which are basically savings for the rainy day, have plunged to such alarming levels, has raised fears that it may erode foreign investors’ confidence.
Those who argue along this line note that already there is donor fatigue because the country’s foreign development partners have lost confidence in the fiscal system.
Foreign investors are said to be shifting attention to more economically stable countries such as Ghana, South Africa and even Benin Republic.
The drying up of the country’s fiscal buffers also constitutes serious threat to national security.
There is a consensus of opinion that rebuilding the collapsed fiscal or economic buffers will not be feasible, at least for now. The marginal rebound in oil prices is not enough to mitigate the economic crisis.
The fact that the $21 billion the World Bank said Nigerians abroad sent home in 2013 alone adds up to a quarter of the nation’s earnings from oil export, lends credence to the fact that Diaspora remittances could rescue the economy is well harnessed.
Putting the $21 billion remittance value into context, the Principal Associate, MobileMoneyAfrica, Mr. Emmanuel Okoegwale, said the Federal Government proposed budget of $31 billion for 2016.
He said in Egypt, remittance inflow is higher than revenue from Suez Canal and in India, it is more than IT export income.
The truth is that official statistics probably greatly underestimate the size of the Diaspora. This is because statistics are not likely to include illegal immigrants. Besides, as Etomi observed, Nigeria’s remittance market comes under the “undocumented economy” where reliable data is hardly captured by the CBN and other statistics/data-capturing government agencies.
