As part of its foreign exchange (FX) reforms to boost the inflow of Diaspora remittances in the country, the Central Bank of Nigeria (CBN) recently introduced what it called “Naira-4-dollar” scheme. The initiative aimed at incentivising senders and recipients of international money transfer, is also expected to support forex stability and encourage commercial banks and other financial institutions to develop products and investment vehicles geared towards attracting investments from Nigerians living abroad.
The scheme took effect from March 8 and is expected to end on May 8. Part of the policy incentives is a payment of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organisations (IMTOs).
Though this incentive is seen in some quarters as too small to have any real impact on Diaspora remittances, the CBN deserves commendation for this initiative as it will increase annual Diaspora remittances and possibly save the naira from its present slide in the forex market, and ease the current liquidity challenges in the market.
If the scheme is well managed, it will have a positive impact on inflows, and ultimately on the exchange rate which, at the present exchange rate of N480/$1 in the ‘black market,’ is too wide compared to the official window of N375/$1.
While the new policy may increase transparency of remittance inflows and provide Nigerians in Diaspora with cheaper and more convenient ways of sending money to Nigeria, the apex bank should go a step further by allowing exporters unfettered access to their export proceeds, whether in forex or naira. If this is done, it will drive remittance inflows and enhance formal banking channels to offer cheaper, faster and more convenient way of remitting funds to beneficiaries.
There is no doubt that the initiative is a step in the right direction. According to the World Bank, Nigerians in Diaspora in 2019 remitted $21billion to the country. The amount was expected to gross over $27billion in 2020 but for the COVID-19 pandemic that disrupted global economy. The $21billion in 2019 put Nigeria as the 7th largest recipient in remittances, behind India, China and Egypt.
PricewaterhouseCoopers (PWC), one of the leading accounting firms in the world, recently suggested that Nigeria’s remittance flows could reach $34.8billion by 2023 if the policy is coherently packaged through improved infrastructure as well as avoiding factors that could undermine the process. This is good news, as data from the CBN has also shown steady improvement in recent times, from a weekly average of about $5 million to $30 million per week. But we advise that the cost of sending remittances should be reduced to boost their inflows to Nigeria.
Facts from other countries that have introduced the policy such as India, Pakistan, Egypt, China, among others, show that the scheme has the capacity to enlarge scope and scale of foreign exchange inflows into their economies and stabilise their exchange rates and support external reserves. Nigeria should learn from what has made the policy work in these countries as well as its drawbacks.
This will help harness remittances that will generate capital for our productive investments for the growth and development of small and micro-enterprises. It will, in turn, create employment, especially now that the unemployment rate has reached 33.3 per cent, according to the latest figures from the National Bureau of Statistics (NBS).
The policy will also restore confidence in the economy and attract Diaspora Investment as well as Foreign Direct Investment (FDI). Before now, operators and remittance service providers were reported to be unable to integrate with commercial banks. As a result, the use of reimbursement of remittance fees should be seen as pivotal in supporting improved inflow of remittances to the country.
Altogether, we believe that for the ‘Naira-4-dollar’ policy to be a success, the government should tackle the problem of illicit financial flows that has caused the economy a lot in recent years. Nigeria accounts for 20 per cent of the total loss of $50bn annually on the African continent.
We maintain that regardless of the huge benefits of the scheme, the best way to boost forex supply in the country is to diversify the economy, build sustainable industrial clutters where Nigeria can earn foreign exchange outside oil revenue.