Several actions have been taken by the Apex bank to increase its foreign earnings and improve liquidity across the foreign exchange (forex) windows.
On 30 November 2020, the Central Bank of Nigeria (CBN) directed all International Money Transfer Operators (IMTOs) to pay funds to beneficiaries of Diaspora remittances in foreign currency (US Dollars) as against the erstwhile Naira payment aimed at reducing pressure on the forex parallel market.
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Noticeably, the exchange rate at the parallel market improved slightly following this directive as the US dollar exchanged for N465/US$ as of 28 December compared with N500/$1 on 30 November 2020.
In a swift move to consolidate that gain, the CBN had issued a circular dated March 5, 2021, signed by A.S. Jibrin, on behalf of the Director, Trade and Exchange Department, stated that all recipients of Diaspora remittances through CBN’s licensed IMTOs shall henceforth be paid N5 for every $1 received as remittance inflow.
Based on World Bank data, the country’s total direct remittance inflows have averaged $US21bn in the past nine years. This clearly reflects the high level of migration within this period linked to a number of reasons.
The Apex bank has insisted that the new “CBN Naira 4 Dollar Scheme” which came into effect on Monday, March 8, 2021, is aimed at providing Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
The CBN Governor, Mr Godwin Emefiele, highlighted the benefits of the newly introduced “CBN Naira 4 Dollar Scheme,” when he spoke at a webinar organised by Fidelity Bank Plc, entitled, “The New forex Policy, Implications and Positive Impact on Diaspora Investments.”
The CBN governor explained that the new policy was expected to attract Diaspora remittances through the official foreign exchange channels as well as support forex stability in Nigeria.
He said: “Our policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
“In addition, we believe that this new policy measure will encourage banks and financial institutions to develop products and investment vehicles geared towards attracting investments from Nigerians in the Diaspora. We have no doubt that these changes can help to finance a future stream of investment opportunities for Nigerians living abroad.”
Emefiele disclosed that the average cost of sending $200 worth of remittance to Nigeria from the US was about 4.7 per cent, saying studies have shown that even a one per cent decrease in the cost of sending remittance can result in a significant boost in inflow.
He added, “Countries in South Asia, such as Pakistan and Bangladesh, are aware of this impact and they introduced reimbursement schemes to support inflows.
“In Pakistan, the scheme, which is known as free send, has enabled a record amount of inflows of over $2 billion a month even during the COVID-19 pandemic. Bangladesh introduced its own scheme in June 2019, which is a two per cent rebate on remittance inflows. Following this action, they have also seen a 20 per cent boost in remittance inflows.
“On the topic of round-tripping, there is a maximum amount that you can remit through an IMTO. You can’t send a $100,000 through IMTO. The CBN’s action, while it does not go far enough in offering total reimbursements, is a step in the right direction in reducing the cost burden for Nigerians remitting funds to Nigeria.
Also speaking at the forum, Vice president, Professor Yemi Osinbajo commended the new FX policy, saying it would aid more investment from Nigerians living abroad.
The vice president, who was represented by Executive Secretary/Chief Executive Officer, Nigerian Investment Promotion Commission (NIPC), Ms Yewande Sadiku, stated, “Nigerians in Diaspora represent an indomitable force, they are flag bearers of Nigeria’s image, Nigeria entrepreneurial energy and Nigeria’s incredible can-do attitude.
The Vice president said: “In business, politics, education, sports, entertainment, science, medicine, and arts, Nigerians have demonstrated across the world what Nigerians represent in Nigeria. We realise the role of the diaspora and the potential that they represent.
“For several years, the remittances from Nigerians in Diaspora exceeded Nigeria’s oil revenues, which translated sometimes as high as six per cent of GDP. We are interested in understanding exactly how to translate this potential to investments.
“So, the office of the VP working with stakeholders, including NIPC, worked on a study and we found that many Nigerians, particularly first-generation males, have a keen interest in investing in their country.”
Osinbajo said: “We noticed that 70 per cent of remittances go into family support and only 30 per cent of the inflows go into investments and in that 30 per cent, a bulk of it goes into real-estate.
“But what Nigerians in the Diaspora indicated would be useful for them is to undertake more investments into Nigeria in specific engagements that promote investment opportunities led by the private sector. From the government, what they asked for was an improvement in the enabling business environment.
“The effort of government in recent years has been on improving the business environment and initiatives, such as this, driven by the private sector, to attract investment from the Diaspora is one of the key things they asked for
“We are delighted with the new CBN policy that makes it easier for Diaspora Nigerians not just to transfer funds to Nigeria but to have greater control over the funds they transfer to Nigeria. And I know that when statistics would be released, we would see the material impact it would have had on the Diaspora remittances from Nigerians to Nigeria.”
Also Speaking at the webinar, the President of AfreximBank, Professor Okey Oramah commended the CBN governor for the reforms taking place with regard to Diaspora remittances.
He recommended ways to boost Diaspora participation in the Nigerian economy through specialized funds and accounts that would encourage them to save their long-term funds in Nigeria.
He said: “Africans and Nigerians can consider allowing special Diaspora foreign currency accounts with higher interest rates than the US or Europe and with an inbuilt guarantee against potential losses from bank failures and country risks.
“Afreximbank would be happy to work with authorities to put in place a country risk guarantee that can be retailed to Diasporas depositing money in such foreign currency accounts. We have done something similar in Zimbabwe.
“Secondly, designated commercial banks may be encouraged to implement Diaspora targeted certificates of deposits that can be liquidated in local currencies or foreign currencies with built-in incentives to encourage liquidation in local currencies.
“Thirdly, is a properly structured Diaspora fund that can be issued with eligible bondholders encouraged to open coupon payment accounts locally in Nigeria to enable them to cover local expenses and support their relatives at home.”
Oramah stated that by creating the requisite environment, the diaspora could become a catalytic force that would break the development barriers and rapidly transform the country and the continent.
The Chief Executive Officer of Fidelity Bank, Nneka Onyeali-Ikpe, in her remarks said: “We, as a bank, are in full compliance with the policy and we are working with about 17 already registered International Money Transfer Operators to ensure that they are in full compliance with the modalities that have been stated by the government.
However, many analysts have expressed worry that taxpayers funds will be going to reward forex earners while others see the policy as a subtle devaluation.
The Association of Bureau De Change Operators of Nigeria (ABCON) has shown its full support to the Scheme, noting that it is capable of ensuring a competitive Diaspora remittance market space that would spur Naira stability.
President of ABCON, Alhaji Aminu Gwadabe opined that there was a need to break the monopoly of certain players in the remittances spaces by allowing other relevant stakeholders like BDCs. He cited examples of how Kenya, Ghana and a host of other African countries deepened their remittance space through a competitive market, and how it led to the stability of their domestic currencies.
An economist, Tope Fasua said: “Some people believe that this additional N5 is a sort of devaluation, but I think we should give the policy a chance and see how it works out.
“Some of the policies being pushed out are bold and hopefully, they will achieve their objectives.”
The Director-General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir said: “On the face of it, the scheme should encourage Nigerians working abroad to remit more into Nigeria and thereby improve the forex inflow.
“However, we need to dimension the inflows which have historically been 70 per cent for family support and 30 per cent for other purposes, including real estate which carries the greater part.
“In order to yield more of the anticipated inflow for investment in productive activities, the CBN would have to work with the banks and other relevant government agencies to initiate portfolios and measures to point the remitters in that direction.”