Foreign exchange income from Diaspora remittances have supported the Nigerian economy in funding criti projects across the country and assisting in the upkeep of family members. But while the World Bank has projected global remittances to decline sharply by about 20 per cent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown, implying that Nigeria would need to broaden avenues for migrant remittances flow into the economy.
However, the Association of Bureaux De Change Operators of Nigeria (ABCON) believes that breaking the monoploy of the fewer players’ in the market through the inclusion of Bureaux De Change (BDCs) in the payment channels could become a big win for the Nigerian economy. ABCON insists that allowing multiple and digitised channels to receive funds and adopting virtual Know Your Customer rules will help save the economy from consistent dollar crunch and revenue leakages.
Why payment system reform in remittances sector is imperative
Nobody saw the Coronavirus (COVID-19) pandemic coming as even business and political leaders that knew when it started, underestimated its heavy impact on their businesses and economies.
For Nigeria, the impact has been devastating especially in the inflow of oil revenue and Diaspora remittances into the economy.
The World Bank has already estimated that Diaspora remittances into global economies will drop by 20 per cent this year and Nigeria, which earned $25 billion in 2019 from the market would need to open up more channels to boost collections. Nigeria’s 2019 earnings was an eye opener to many that migrant remittances is the backbone of the country’s foreign exchange market and should be protected.
But doing that will require policy shift including breaking the current monopoly that limits funds receipts to only ‘few lucky’ players at the detriment of the economy.
President, Association of Bureaux De Change Operators of Nigeria (ABCON) Alhaji (Dr.) Aminu Gwadabe, believes that now is the time to break the current industry monopoly that puts the remittances market in the hands of few players while depriving others of tapping into the goldmine. For him, there is urgent need to get more players join the remittance collection market including getting BDC operators approved for the business.
Gwadebe said including Bureaux De Change (BDCs) as one of the channels through which Diaspora remittances enter the economy will give depth to the forex market while boosting BDCs operations.
The ABCON boss argues that for Nigeria to get the full value of what is due to it in the remittance market, BDCs have to be included in the remittances payment channels and allowed to receive funds from Nigerians in the Diaspora. The BDCs can perform this role through contactless and digitised channels to make collections easy and seamless.
“Now is the time for government and financial sector regulators to promote contactless payment channels, leveraging on digitisation in the receipt of migrant remittances. According to him, the first win will be to get BDCs included in the payment channels to break monopolies of the fewer players, use of Simple Virtual Know Your Customer rule for beneficiaries and implementing supportive regulations,” Gwadabe said.
The ABCON boss also called for the establishment of training institutes to enhance capacity and infrastructure in the industry and broadening players’ business scope with cash-back incentives for those that patronise BDCs while also implementing a less cumbersome and complex documentation requirements for end users.
World Bank Group President, David Malpass, said remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies. He explained that remittances help families afford food, healthcare, and basic needs. Also in 2021, the World Bank estimates that remittances to low and middle-income countries will recover and rise by 5.6 per cent to $470 billion.
The global average cost of sending $200 remains high at 6.8 per cent in the first quarter of 2020, only slightly below the previous year. Sub-Saharan Africa continued to have the highest average cost, at about nine percent, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region. Gwadabe said the entry of BDCs into the remittance market will reduce such high cost of receiving money and deepen the job market.
Besides, 90 per cent of the total World Bank estimate of about $18 billion is trading outside the official window while majority of the registered International Money Transfer Operators (IMTOs) partronize the informal market because of the higher margin and post funding settlements method of the unlicensed agents.
Opportunities in Diaspora remittances
According to Gwdabe, there are over 1.24 million Nigerian migrants abroad and 50 per cent of them lives within the African neighbour hood, and the figure is expected to rise in the coming years. The migrants’ cumulative remittances figures into the Nigerian economy by the World Bank estimates indicated $22 billion in 2017, $23 billion in 2018 and $25 billion in 2019. However there is a huge differential between the Word Bank statistics and the local sources due to lack of data and operators indulgence in non reporting and non rendition practices to the official window.
Gwadabe listed importance of migrant remittances to the economy to include serving as a lifeline for the recipients small house hold in the economy and used for health, nutrition, education and societal needs.
The remittances are also higher than both Foreign Direct Investment and foreign aids flow to the economy and still, are cheaper sources of funds. He said that remittances can be used infrastructural developments as seen in India and Lebanon while in the Dubai UAE, the remittances are stable sources of liquidity in the Market. The remittances, he added, can also serve as excellent source of investments funds in the economy even as it represent 83 per cent of the Federal Government budget in 2018. The remittances were 11 times higher than the FDIs in the same period and 7.4 per cent larger than the net official development assistance received in 2017 of $3. 34 billion in the economy.
Still, some factors, have been listed as responsible for the drop in migrants remittances to Nigeria. Gwadabe said, they include, limited payers in the cash out-cash, cash-in the industry, lack of capacity and infrastructures to receive the funds, uncompetitive forex rates, as well as competing fixed and parallel market rates. There has also been inhibitive regulatory policies, over reliance in cash and complex distribution and handling nature of cash, activities of unlicensed operators and manual Know Your Customer (KYC) plans.
leveraging CBN’s support
The CBN has for years, implemented robust and friendly policies to deepen the players in the market and remains the first regulator in the world to ban exclusive contracts of the dominant players. The Godwin Emefiele led CBN remains proactive and is taking steps to promote more Diaspora remittances inflow into the economy. Such moves he said, will address the dwindling fortunes of the naira in the post COVID-19 era and help achieve the vision of making the local currency sovereign in the West African market.
“I CBN’s forex policy that has brought stability to the BDC industry and helped operators embrace automation which is the standard best practice globally as making the BDCs one of the channels through which the Diaspora remittances come into the country can be a good opportunity to reduce the reliance of rate differentials to sustain operators’ businesses.
He said that ABCON and its over 5,000 members nationwide are behind and in support of the various CBN measures to deepen and Revoulutionalize the supply of foriengn currency to the retail critical end user needs in the market.
Gwadabe said the BDCs will continue to support Nigeria’s growth agenda and CBN’s commitment to exchange rate stability. To continue to play these roles creditably, the BDC industry needs improved access to foreign exchange.
Understanding Diaspora remittances/BDCs role in economy
Gwadabe said that the BDCs remain at the centre of economic development and have the capacity to attract needed capital for the development of the Nigerian economy.
Findings have also shown that forex remittances from Nigerians in the Diaspora far exceeded the country’s earnings from crude oil export last year. For instance, that the total oil earnings of the nation stood at $15 billion in 2018, while the total remittance from Nigerians in Diaspora amounted to $25 billion in 2018. Nigeria earned a total of N5.54 trillion ($15.4 billion) from oil revenue last year, according to figures released by the Central Bank of Nigeria (CBN). Gwadabe said the CBN forex policy has brought stability to the BDC industry and helped operators to embrace automation which is the standard best practice globally and adding the BDCs to one of the channels through which the Diaspora remittance funds come into the country will be a good way to reduce the reliance of rate differentials to sustain operators’ businesses.
“Nigerian BDCs operators have also identified with the immense opportunities presented by Diaspora remittances and want to play greater role in attracting more foreign capital into the economy. Reason being that remittances are known to help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially, drive economic growth,” Gwadabe said.
He said that Nigerian BDCs, like their counterparts in other emerging or developing economies, have what it takes to deepen the forex market through remittances and collections. “When that happens, it will not be the first time that BDCs were given the opportunity to turn the remittances market around for good. In India, the BDCs generate over $30 billion from the Diaspora remittances. In United Arab Emirates, the entire banking needs of banks are met by the BDCs. The working of the Lebanon economy is highly dependent on the activities of BDCs in that country. Therefore, Nigeria can also achieve higher revenue through BDCs given the opportunities we seen in the remittances market,” he said. Besides, financial institutions’ long procedures, complicated forms, and history of poor service quality means BDCs entry into the market will change the dynamic for good because they are not only simple in their operations, but are closer to the people needing the remittance funds.