The Central Bank of Nigerian ( CBN ) recently introduced what is now called the naira-for-dollar scheme. It is an incentive for senders and recipients of international money transfers. All recipients of diaspora remittances through CBN’s licensed IMTOs (International Monetary Transfer Operators) shall henceforth be paid 5 naira for every 1 dollar received as remittance inflow.
This is part of the apex bank’s effort to encourage the inflow of diaspora remittance into the country. The scheme isn’t a backdoor to devaluing the naira. It has the embodiment of a promo, designed to increase awareness and subsequently boost the inflow of the Nigerian diaspora into the system. It is also aimed at reducing the cost of remittances from the current cutthroat rate charged by the IMTOs, and it also pushes more inflow of dollar to come through the IMTOs as against other sources.
According to PwC, remittance flows to Nigeria are set to almost double in two years, from $18.37bn in 2009 to $34.89bn in 2023. The country is one of the largest destinations for remittance flows in the region, with personal remittances totaling 5.3% of GDP in 2019, compared with a Sub-Saharan African average of 2.8%, according to the World Bank. The policy could make a small contribution to higher remittance inflows, says William Attwell, a senior country risk analyst at Fitch Solutions in London.
However, recovering labour markets in countries with large diaspora communities, such as the US and UK, would “arguably be a more important driver than this policy”, he says. “We saw this during the global financial crisis when personal remittances to Nigeria fell by around a billion dollars, but then swiftly recovered in 2010.”
On shoring up the naira, many analysts are optimistic about the plan’s potential as there is a possible spin-off if the incentive encourages Nigerian banks to design more financial-services products for the diaspora.
In the short to medium term, the Nigerian authorities will be forced to resort to other forms of forex controls if they are to halt the outflow of foreign currency and keep the naira at its current rate.
Another risk in this policy is that some people might want to engage in “round-tripping”, recycling their finances just for the gains of this programme.
The policy will definitely make transfer or remittance cheaper for Nigerians living in the diaspora and give the recipients some sort of incentive, thereby attracting more forex investors in the country. Though the scheme happens to be temporary, just six months, it can help to reduce the huge gap between the official rate and the rate in the black market, as incentives to support the black market would be lower now.
Diaspora remittance is very important in fueling the economy as it contributes about 6% to the GDP. Nigerians in the diaspora have however complained that the scheme does not simplify the process of sending money to Nigerian domiciliary accounts. The new policy, they stress, does not solve the stress of a simplified money transfer process, especially as regards the KYC protocol.
Questions regarding its impact and whether the new policy scheme strengthens international transfers is still in doubt. Statistics show that 70% of Nigerians in the diaspora send dollars to their families at home for domestic purposes, and as long as the global economy doesn’t get substantially better, there is no likelihood of a remarkable increase in the volume of remittances through IMTOs. As long as nothing triggers the increase in the volume of money being sent in, the volume sent in will not increase remarkably.
The policy might only slightly encourage the foreign exchange market which over time hasn’t been doing so well. The policy may also ease the pressure on the loss on the Nigerian forex market as it will encourage the supply of hard currency into the forex market, thereby weakening the black markets.
In as much as the scheme seeks to encourage remittances via appropriate channels, the policy doesn’t make money transfer cheaper or easier neither does it encourage remittances via the formal channels.
The scheme does not steadily put more money or increase the rate of livelihood for the average Nigerian, asides from the extremely wealthy ones who can participate in the round trips for the gains of it. The scheme equally doesn’t add something new to the table in reducing poverty, neither does it have a direct impact on the net and gross economy index.
Possible solutions are that the CBN should adopt policies that mandate the IMTOs to use easier means of dollar remittances and probably engage indigenous, third-party players in the foreign exchange market. This will give a more analytical and transparent approach to remittances and audit performances of the dollar and increase the value of the naira.
Rebecca Ajayi Victoria