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Nigerians living abroad sent more money back home in the three months through June 2017 than in comparable periods dating back to 2015, as the urge to divert cash through informal channels wane.
Current transfers, mainly made up of Diaspora remittances, saw a 25 percent increase to $5.4 billion in the said period. That compares to a 16 percent contraction in the second quarter of 2016.
Diaspora remittances, the largest source of foreign inflows into Africa’s largest oil producer after oil exports, were hammered by an unpopular currency regime by the Central Bank of Nigeria (CBN) that pegged official dollar inflows at an artificial exchange rate of N199 per dollar, not minding that the true market value of the naira was around N300 per dollar, where informal markets traded.
Desperate to benefit from the over N100 per dollar spread between the official and unofficial channels, Nigerians in the Diaspora sought out the latter to send money to their families back home.
Fast forward to April 2017, and the spread has narrowed to within N3 per dollar, following the creation of a market window by the CBN where the naira trades weaker at around N360 per dollar, whereas the black market rate trades at N363.
“The improvement in Diaspora remittances is policy-induced,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said.
“Nigeria’s capital controls stifled not only remittances but foreign investment, however, the I&E window has now sorted that,” Yusuf said.
According to Yusuf, improved remittances will bolster liquidity in the foreign exchange market, while leading to an improvement in aggregate consumption and foreign investment.
The naira gained some 0.5 percent to N359 per dollar at the I&E window, Wednesday, according to data published on the website of trading platform, FMDQ.
Since inception, the I&E window has inspired investor confidence, having handled some $15 billion in the period, according to data compiled by BusinessDay and sourced from FMDQ.
Remittances to Nigeria had slumped 10 percent to $19 billion in 2016, according to World Bank data, but the Washington-based lender that publishes annual reports on Migration trends, projects a 15.8 percent increase to $22 billion this year.
“Remittances are on course to recover in 2017 after two consecutive years of decline,” the World Bank said last month (October), attributing it to improved economic activity in high-income OECD countries.
Despite the decline in 2016, Nigeria is the highest receiver of foreign remittances in Africa and the sixth largest in the world. Remittances make up 4.4 percent of the country’s Gross Domestic Product and it has grown by 5.2 percent in nine years.
Remittance flows to sub-Saharan Africa declined by an estimated 6.1 percent to $33 billion in 2016, due to slow economic growth in remittance-sending countries; decline in commodity prices, especially oil, which impacted remittance receiving countries.
However, remittances to the region are projected to increase by 3.3 percent to $34 billion in 2017, according to the World Bank.
There are about 33 million migrants in Africa, half of which remain on the continent while the remaining half are scattered across different regions of the world.
Of the $60.5 billion sent to Africa via remittances, close to 80 percent of that was to five countries: Nigeria ($19bn), Egypt ($16.6bn), Morocco ($7bn), Algeria and Ghana ($2bn each).
For 19 receiving countries in Africa, remittances are critical, as they rely on these flows for 3 percent or more of their GDP.
In six countries, remittances make up more than 10 percent of GDP: Liberia (31%), The Gambia (22%), Comoros (20%), Lesotho (18%), and Senegal (14%).
Nigeria tapped into the viable Diasporan market through the issuance of its first $300 million Diaspora bond earlier this year.
