By Henry Boyo
IT is now common for thousands of families, across Nigeria, to be regularly blessed with foreign exchange remittances from their children or relations in the Diaspora. It is estimated that direct remittances to Nigeria presently exceed $25bn annually.
Arguably, this is more than 50 per cent of Nigeria’s present reserves of $40bn, and also represents over 50 per cent of annual Federal Government’s budgets between in recent years.
Instructively, therefore, if Diaspora remittances are sensibly infused into the economy, Nigerians will be much better off, as the considerable additional forex inflow would bolster consumer demand and stimulate expansion in production and employment.
Conversely, however, there is no observable significant impact, either in the annual Government expenditures or indeed in the consumer expenditure of most households, despite the steady increase in Diaspora inflow. Consequently, Diaspora remittances have, seemingly, failed to meet the expectation that higher foreign exchange inflows would positively support the economy of recipient nations.
Conversely, studies by various research organisations, suggest that, with the exception of China and India, higher Diaspora remittances are often indicators of weaker and challenged economies! Consequently, Nigerians may not ‘unduly’ celebrate increasing Diaspora remittances, which are also recognised as a feature of a failing economy, as it invariably compels mass migration to proverbial greener pastures abroad!
Indeed, since Diaspora remittances have become a double-edged sword, the moral of the link between higher remittances and lower GDP, is that increasing Diaspora remittances, may, ultimately deepen poverty, as it underscores an unceasing exodus of able-bodied and qualified migrants, who are compelled by lack of employment and the ravages of a weak currency, to leave behind, presumably, less ambitious, and less qualified citizens to grow the home economy.
Notably, the above relationship between higher levels of Diaspora remittances and lower GDP, does not, however, explain why bigger inflows of Diaspora remittances, do not impact positively on the exchange rate of those labour/manpower exporting countries. For example, there is no real indication that rapidly increasing Diaspora remittances, ever made any meaningful impact to prop up Naira’s exchange rate. Indeed, the combination of CBN’s $45bn present foreign reserves, plus, the additional over $25bn Diaspora remittances, have surprisingly, failed to produce a stronger Naira exchange rate, or make any meaningful economic impact; curiously, it is as if Diaspora dollar remittances don’t even exist!
Evidently, the dollar reserves CBN regularly auctions to banks and allocates at face value to over 3000 Bureau-De-Change operators and banks, are derived primarily from government’s dollar receipts from crude oil.
Conversely, however, there is no explanation into which market, the billions of Diaspora dollars remittances, are sold or exchanged for Naira; furthermore, such dollar inflows, inexplicably, never seem to positively impact on the Naira exchange rate!
Incidentally, this writer recalls a chance meeting with a classmate a few months back. My friend was apparently agitated that he is always paid $1=N305 for the monthly dollar remittances, from family members who live abroad. Furthermore, he was also clearly enraged that he had become dependent on his children, because inflation and a crippled Naira rate have significantly eroded the value of the pension income that he consolidated, with great sacrifice before retirement. Furthermore, my friend, wondered why his bank does not pay him US dollars for these remittances, so that he could freely exchange for much higher Naira rates. The gentleman felt betrayed by the system, as he noted that CBN does not forcibly auction its own dollars at N305 to $1; i.e. about 20 per cent less than the BDC rate; consequently, he lamented, that he had given up, after several altercations with his bankers on the applicable exchange rate.
Ultimately, my friend was advised to open a domiciliary account with any of the major Nigerian banks and also assured that thereafter, the foreign remittances from his children will be deposited, within a week, into his personal domiciliary account, from which he could actually withdraw his forex income and change it, at the prevailing Bureau-De-change rate; which is, presently between N350-360=$1. Of course, he wondered why his bank did not also tell him this simple way out, to significantly increase his income.
Similarly, hundreds of thousands of old and aged Nigerians pensioners may have also been robbed of over 20 per cent of the real value of the dollars regularly remitted to them by their children and other well-wishers and relations abroad. Evidently, the present almost $26bn of Diaspora remittances are warehoused abroad, and do not therefore supplement, the size of CBN’s regular dollar auctions to drive down the dollar price.
Arguably, therefore, the official process of deliberately, sequestering Diaspora dollar inflow in overseas accounts, instead of the local forex market, is therefore misguided and seriously injurious to our economy!
Regrettably, this requirement to pay Naira for foreign denominated money transfers is underscored in paragraph 4.3.1 and 4.3.2 of CBN’s Guidelines on International Monetary Transfer Services in Nigeria. For example, paragraph 4.3.1 demands that for inward money transfer services, a money transfer operator shall “make payments to customers only in Nigerian Currency in line with CBN regulation”; while, paragraph 4.3.2 of the same Guidelines, demand that the Money Transfer Operator shall “use the prevailing exchange rate on the day the transfer is received”
Obviously, my classmate will not be so distraught, if it is only mandatory that the money transfer operator (banks inclusive) should also adopt the “so-called” Bureau-De-Change rate for the conversion of the dollar sums, received from Diaspora Nigerians.
Furthermore, it is inequitable that CBN should formally allocate its dollars to Bureau-De-change operators, who add no meaningful value to earn such privilege, while parents and guardians who actually made tremendous sacrifices to educate and train their children, become forced to incur a 20 per cent loss on the foreign remittances from benefactors abroad.
Clearly, for CBN to achieve its prime mandate of price stability, and improve the lives of Nigerians, it is absolutely necessary for the Bank to urgently restructure the Exchange Rate Payment Terms for Diaspora remittances, to reflect equity across all platforms for forex revenue and sales; arguably, in the process, stronger Naira rates will emerge and reduce or indeed totally eliminate the trillions of Naira annually wasted for payments of fuel subsidy; furthermore, the reported illicit daily outflow of 10million litres of fuel, allegedly smuggled across Nigeria’s borders daily, will also be minimized, with a much stronger Naira rate!
Thus, if Diaspora dollar remittances remain domiciled in overseas Nigerian bank accounts, the Naira sums paid locally to pensioners and beneficiaries in exchange, will, invariably, be simply sourced, at no cost, from the persistent excess Naira supply, that CBN ceaselessly unleashes in the money market, every time, Government’s dollar revenue is unilaterally substituted with Naira by CBN at arbitrary rates!