A forecast of $22 billion inflow from diaspora remittances into Nigeria this year by an African rating agency, Agusto & Co, amid the global meltdown, illuminates the immense benefits that, with creative policies, the country can tap from this revenue stream. Agusto, in its ‘2021 Nigeria Diaspora Remittance Report & Survey’, projected a five percent rise in remittances in 2021 and by a further two percent in 2022. The upshot is that despite a drop in remittances in 2020 that the World Bank attributed mainly to the COVID-19 crisis, the federal and state governments and the Central Bank of Nigeria need to devise and harmonise policies to raise this income source and direct more of it into investment.
Agusto’s survey came a few days after the World Bank reported strong remittance flows in sub-Saharan Africa in 2020 despite global and regional headwinds, with contraction recorded only in Nigeria, reflecting policy and institutional deficiencies in the region’s biggest economy. The bank said the 27.7 per cent decline in remittances to Nigeria from $21.45 billion in 2019 to $16.8 billion in 2020 was responsible for the overall decline of 12.5 percent in inflows to the region that stood at $42 billion. Excluding Nigeria, remittances to the region rose 2.3 per cent, with countries like Zambia recording 37 per cent growth; Mozambique 16 percent; Kenya 9.0 per cent, and Ghana 5.0 per cent. Agusto noted that Nigeria recorded the worst contraction among Africa’s top seven recipients who, combined, recorded an 11.9 per cent decline. For Nigeria’s policy planners, the reports should serve as a wake-up call to devise intelligent measures to convert the strength of the diaspora remittances into economic heft.
Remittances generally refer to funds transferred by migrants to their home country. The IMF says they represent “household income from foreign countries arising mainly from the temporary or permanent movement of people to those economies.” Inclusive of cash and non-cash items moved through formal channels such as electronic wire, or informal channels like money or goods ferried across borders, they provide a lifeline for poor families in many countries.
PwC adds that diaspora remittances play an important role in economies, with the primary benefits being an improvement in the general welfare of recipient households. “They help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially drive economic growth.” Globally, remittances grew to $689 billion in 2018, with developing countries receiving 77 per cent. India, China, Mexico, the Philippines, and Egypt are the world’s top five recipients. Some economies would collapse without them; in Tonga, it constitutes 37.6 per cent of GDP, Haiti 37.1 percent and South Sudan 34.1 percent. The $33.18 billion received by the Philippines in 2018 was about 9.0 per cent of its GDP.
Nigeria can mine immense advantages from this rich lode. Its estimated 15 million-strong (legal and illegal) diaspora should be converted into wealth creation. The UN puts legal immigrants at 1.3 million. The United States (22.6 per cent), the United Kingdom and the West account for the bulk of Nigeria’s diaspora. It is the 10th largest recipient in the world, the second largest in Africa after Egypt and accounts for 40 per cent of inflows into sub-Saharan Africa. It is the second major source of foreign exchange for the country and the $25 billion Nigeria received in 2018 was 83 percent of the national budget, 11 times the foreign direct investment for that year and 6.1 percent of GDP, according to PwC. Indeed, analysts say because many transfers come in small amounts and through informal channels, the value is often understated. For instance, Agusto and PwC put remittances in 2020 at $21 billion, much higher than the estimates of the Bretton Woods institution. About $96.5 billion came in the five years to 2018, said the National Bureau of Statistics.
To channel part of this into investment, SMEs, infrastructure, and job creation, the CBN should recalibrate its policies. On the average, over 70 per cent of diaspora funds are drained by consumption. Though this helps to address poverty, efforts should be made to raise the 30 per cent available for investment much higher. Start with transfer costs, as remittance charges average 8.5 per cent in sub-Saharan Africa compared to the global average of 7.1 per cent. In Nigeria, costs are higher at over 12 per cent and worsened by a rowdy exchange rate mechanism that facilitates sharp practices and drives many to unofficial channels.
Another is technology. PwC recommends greater and faster deployment of technology, mainly mobile money platforms, thereby reducing transfer costs to less than 3.0 percent, the target set under the UN’s Sustainable Development Goal No 10. The Nigerians in Diaspora Commission established in 2017 has been active in defending and promoting the rights and welfare of Nigerian emigrants; it needs to also collaborate with the CBN, and the economic management teams of the federal and state governments to fulfil its other mandate of harnessing the human and material resources of this demography in the socio-economic development of the country.
Apart from the commendable Diaspora Bond and the Nigeria Diaspora Investment Trust Fund initiatives that offer emigrants an investment in naira or the US dollar, the CBN should encourage financial institutions to float other special bonds, targeting and providing an opportunity for emigrants to plough investments into infrastructure and productive activities, especially in critical high job-creating sectors like agriculture, mining, industry, technology, and transportation. The recent CBN intervention halting the banks’ long-running short-changing of transfer recipients is the right step.
Beyond this, the operating business environment should be improved, including security, rule of law, taming inflation, corruption, and the cost of borrowing to drive growth. A survey by UNCTAD in Mexico found that for every $2 billion remittance inflow, production increased by $6.5 billion. Despite the size of their economies and large export base, India and China still draw largely from diaspora funds, attracting $83 billion and $59.5 billion respectively in 2020.
The states should also devise robust economic plans to draw investments, and in partnership with financial institutions and the organised private sector, incorporate policies targeting Nigerian emigrants.
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