Despite the turbulent time facing the naira, market feedback shows that the local currency will harness major positives in the economy to close strong by year-end.
The naira appreciated by 21.73 per cent against the dollar in the Investors and Exporters (I&E) window- the official market, , closing at a rate of N780.14/$. At the parallel market, the local currency closed at N1,100/$, an indication of easing volatility in the market.
For Nigeria and many other countries, money transfers from citizens working abroad-Diaspora remittances, are a lifeline for development.
When migrants send home part of their earnings in the form of either cash or goods to support their families, these transfers are known as workers’ or migrant remittances. They have been growing rapidly in the past few years and now represent the largest source of foreign income for many developing countries.
PricewaterhouseCoopers (PwC) analysts said one of the low hanging fruits expected to trigger naira’s continued rebound is the estimated inflows of over $34.8 billion from the diaspora- Nigerians living and working abroad- to the domestic economy this year.
The PwC estimated $25.8 billion inflows from diaspora to Nigeria in 2021 and $25.5 billion in 2019.
“Over a 15-year period, PwC expects total remittance flows to Nigeria to grow by almost double in size from $18.37 billion in 2009 to US$34.89 billion in 2023,” it said a report: ‘Strength from abroad- The Economic Power of Nigeria’s Diaspora’.
PwC said the growth in remittances is subject to global economic forces, which could spur or hinder growth of remittance flows, growth in emigration, economic conditions of residing countries and poor economic fundamentals in the Nigerian economy.
Although a large part of the funds have been accruing to the domestic economy, expectations of higher inflows that come with year-end remittances raises further hopes for the naira.
Global remittance flows, which increased by five per cent to $831 billion in 2022, are expected to grow by a more modest one per cent to $840 billion in 2023. Nigeria is expected to attract about $21 billion of the funds.
The inflows would have been higher but for the anticipated moderation is hinged on the elevated cost of living in several advanced economies, including the United States of America (USA), the United Kingdom (UK), and the Eurozone, which accounted for almost half of global outward remittances in 2022.
Augusto & Co. maintained that the steady inflow of funds from the Nigerian diaspora reflects the strong bond between the diaspora community and their home country, fostering economic stability and contributing to economic development.
It said the increasing importance of remittances in supporting the country’s reserves has necessitated a better understanding of the dynamics of remittance flows into Nigeria.
The 2023 Diaspora Remittance Industry report explained that remittances have grown to become a significant source of external financing for most low and middle-income countries (LMICs), playing an increasingly important role in their economies.
In 2020, remittance flows to LMICs exceeded the flow of foreign direct investments (FDI) and overseas development assistance to LMICs (excluding flows to China) and served as a major lifeline to these vulnerable economies as they grappled with the adverse effects of the COVID-19 pandemic.
Lead economist at the World Bank, Dilip Ratha, explained that in many countries like Nigeria facing dollar scarcity , prevalence of parallel market premiums have encouraged remittance flows through informal channels.
“A combination of currency devaluation, higher interest rates on foreign currency deposits (and making such deposits repatriable), and elimination of surrender requirements can increase flows through formal channels,” he said.
Ratha said remittances will continue to grow with more than a billion people, most of them in Africa and South Asia, expected to join the working-age population by 2050.
“By contrast, populations are aging in many advanced economies. This demographic imbalance will increase the supply of migrant workers and the demand for them. Climate change and extreme weather will add to migration pressures. As the number of migrants increases and cross-border payments become cheaper and simpler, remittances will continue to provide stable income to millions of people and play a vital part in the global economy,” he said.
Some argue that remittances can also create dependency, undercutting recipients’ incentives to work and thus slowing economic growth. But others argue that the negative relationship between remittances and growth observed in some empirical studies may simply reflect the countercyclical nature of remittances—that is, the influence of growth on remittances rather than vice versa.
On its part, the Bankers Committee enjoined the Federal Government to continue to explore policies to improve investor confidence in the Nigerian economy and pave way for foreign and domestic investments. Members emphasised the need to attract investments, particularly, to auto manufacturing, aviation, and rail industries to boost non-oil revenues.
The Committee, thus, expressed the view that, key policy mechanisms to shield the Nigerian economy from persisting global shocks and other emerging domestic shocks, are urgently required for the economy to continue to post positive growth.
The Committee also recognized the several measures put in place by the CBN to boost foreign exchange liquidity.
“Particularly, Members were of the view that the recent policy on foreign exchange market reform would increase market transparency and encourage more foreign capital inflows. It, therefore, urged the Bank to leverage on effective policies to attract remittances from diaspora to help moderate exchange rate pressures,” the committee members said.
The CBN said that upwardly trending inflation in a period of weak and fragile output growth indicate a delicately stable short-term prospect for the Nigerian economy. Unintended and transitory effects of recent supply-correcting reforms (stoppage of petroleum subsidy and foreign exchange market liberalisation) in the domestic economy are combining with global headwinds to aggravate inflation, weaken household demand and dampen economic activities.
Former Registrar, Chartered Institute of Bankers of Nigeria (CIBN), Dr. Uju Ogubunka, said Nigeria’s trade balance has been weakened by its inability to produce and earn forex.
To firm up the naira, he said Nigeria should equally find new ways to boost production to earn more dollars and boost foreign reserves.
Ogubunka, who is also the President, Bank Customers Association of Nigeria, said aside boosting production, there is need to tackle insecurity to allow farmers go to their farms.
He said such effort will help increase crop yields and bring more dollar earnings for the economy that will firm up the local currency.
