PwC Report: How Impactful are Remittances to Poverty Reduction and Economic Growth?

Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed

Emigration out of Nigeria has become a leading socio-economic issue in most homes today. Buffeted by an economy that has failed most of its people over the past four years and unprecedented unemployment, the appeal to move abroad is quite inviting. This appeal is driven by the need to access well-paying jobs and hence support family members through remittance transfers. Nosa James-Igbinadolor examines the push and pull factors around remittances and asks if monies sent from abroad help to reduce poverty

Movement of people, most often through migration, is a significant part of global integration. Migrants contribute to the economies of both their host country and their country of origin. More than ever before, a lot more Nigerians are leaving the country. The dire economic situation in Nigeria over the past four years has been the biggest push factor, with finding work and escaping economic hardship being most often given as the main reason to consider emigrating, according to a recent Afrobarometer survey. Thousands of middle-class Nigerians are moving to Canada through its skilled workers immigration programme.

Mass emigration out of Nigeria is not a contemporary challenge as Nigerians have always migrated to other countries long before independence in 1960. The largest Nigerian Diaspora community is in the US with around 400,000 followed by the UK with more than 200,000. Post-colonial Nigerian emigration can be divided into four stages: the civil and political unrest in Nigeria in the ’60s, the downfall of the petroleum boom in the 80s, the mid-1990s with the dictatorship of Sani Abacha and finally, the last 20 years of mass migration, that has accounted for 50per cent of the Nigerians now in the UK and the US that arrived in this latest period.

While the downside of the migration problem is obviously the brain drain of well-educated and skilled young Nigerians, perhaps the only bright side to the imbroglio is the remittances from the large Nigerian diaspora to relatives back home. A 2019 World Bank analysis showed that remittances to low- and middle-income countries reached a record high in 2018, with the report noting that, “remittances are on track to become the largest source of external financing in developing countries.”

Everyday across Nigeria, long lines separated by vast distances and national borders form at the Western Union and MoneyGram counters in banks to receive monies sent by relatives abroad. It is difficult to overstate the importance of remittances on Nigeria, and remittances are perhaps, the country’s fastest growing form of capital mobilisation by the poor. This significance is becoming recognised not simply because the international glance has turned to them, but because the scale and growth of remittances have made these dynamic flows of money stand out. In a number of developing economies, receipts of remittances have become an important and stable source of funds that exceeds receipts from exports of goods and services or from financial inflows on foreign direct investment.

Sub-Saharan Africa received a small share of the global remittances in 2018, with Nigeria accounting for over a third of regional inflows. Despite representing a small percentage of global flows, official remittances to sub-Saharan Africa grew by 10per cent to $46 billion in 2018. The World Bank also projects remittances to the region will grow by 4.2per cent in 2019, due to a moderation in global growth.

According to the International Monetary Fund (IMF), remittances sent to sub-Saharan Africa through informal channels, at 45 to 65per cent of formal flows, are significantly higher than in other regions. Overall, remittance flows are anticipated to keep expanding as a result of two factors: projected strong regional economic growth in 2019 and large intra-regional migration flows from the Sub-Saharan Africa region. It is therefore imperative that countries in the region, especially Nigeria, take advantage of this trend in the course of strategic economic decision-making.

A 2017 United Nations report posited that there were 1.24 million migrants from Nigeria living in the diaspora. This is exclusive of those born of Nigerian parents in the diaspora and therefore, hold citizenship of their birth countries. This category also accounts for the remittance flows to Nigeria. Unofficial reports opine that there are about 15 million Nigerians in the diaspora. The country also accounts for a third of migrant remittances flow to sub-Saharan Africa, with PwC Nigeria estimating that these flows amounted to US$23.63 billion in 2018, and represented 6.1per cent of Nigeria’s GDP. The 2018 migrant remittances translated to 83per cent of the federal government budget in 2018 and 11 times the FDI flows in the same period. Nigeria’s remittance inflows were also 7.4 times larger than the net foreign aid received in 2017 of US$3.4 billion.

A recent Pew Research report noted that Nigeria received the largest share of remittances to the region despite an emigrant population of population of 1.3 million that is smaller than that of Somalia (2 million) and South Sudan (1.8 million). Since 2009, the report noted, Nigeria has received more than half of all remittances sent each year to sub-Saharan African countries, by far the largest share of any country in the region. Its regional dominance is comparable only to Mexico’s in Latin America and the Caribbean. In 2017, a record $22 billion in remittances flowed to Nigeria, which has the region’s largest population and economy. Ghana received less than $4 billion in remittances, the second most in the region. The report further noted that, “remittances sent to Nigeria have increased since 2009, when the country received $18 billion from immigrants. Nevertheless, Nigeria accounted for a smaller share of remittances sent to sub-Saharan Africa in 2017 (54per cent) than in 2009 (68per cent). The declining share is due to faster growth in remittances received by other sub-Saharan nations.”

Hugo Cuevas-Mohr, in his analysis of the Nigerian diaspora and remittances, noted that “one of the most fundamental acts of Nigerians when leaving the country is sending money home. Family is key for Nigerians and supporting their families back home is the ultimate expression of love, commitment and duty of Nigerians in the Diaspora.”

Recognising the strategic importance of the Nigerian diaspora, the federal government signed the Nigerians in Diaspora Commission Establishment Bill into law in July 2017. The Law established the Nigerians in Diaspora Commission (NiDCOM), which was set up to engage and utilise the human, capital and material resources of this demography in the socio-economic, cultural and political development of Nigeria. In 2019, the federal government went a step further by recognising July 25 of every year as National Diaspora day. It was in recognition of the obvious human capital in the Diaspora that PwC in its widely hailed report called for the creation of platforms that increase accessibility of crucial information for Nigerians in the Diaspora. The report noted that, “the Nigerian diaspora constitutes mainly semi-skilled, skilled and highly skilled professionals. They are in need of credible opportunities of investment with assured returns on their savings and earnings. A platform where information on opportunities can be shared will help to reduce information asymmetry when it comes to investment opportunities. Also, it is strategically important for state governments to also adopt these platforms to drive and attract remittance flows from migrant indigenes toward consumption, investment and development in their respective sub-nationals.”

Remittances are, in many respects, a form of consumption by each remitting immigrant, albeit consumption of a particular sort. Remittance senders are primarily motivated to contribute to family maintenance of those still in their home country, and, accordingly, most of the money sent is used for basic needs. The truth is that Nigerians who emigrate, hardly do so for personal benefits, but for the socio-economic well-being of their families. Thus, remittances can be regarded as the return on household investments in migration and as a source of investment capital that can be used for entrepreneurial activities, education or to facilitate the migration of other household members.

Remittances depend on a host of factors, including global growth conditions, economic situation in the host country, oil prices and migration policies, amongst others. While there is no readily available data on the state-wide destination of remittances and how the funds are utilised, it is obvious however that an overwhelming majority of remittances to Nigeria go the southern part of the country, with Edo state being perhaps the major remittance destination in the country. A chat with some recipients of remittances from overseas relatives, show that majority of the funds are used by the beneficiaries/recipients for family maintenance and sustenance purposes, with the rest deployed as deposits with banks, as well as into physical asset investment and assorted purposes such as healthcare and education.

The development outcome of remittances has been a subject of discordant, intense and inconclusive debates. On one side of the debate, was the ‘migration optimists’ that dominated the scene in the 1950s and 1960s.

This group of scholars were of the view that the flow of remittances as well as the experience, skills and knowledge that migrants would acquire abroad before returning home, would greatly help in the economic take-off of many developing countries.

On the other side of the debate, the ‘migration pessimists,’ viewed remittances as the outcome of withdrawn human capital from traditional, stable village communities and economies, which will eventually breakdown for remittance over-dependence and lack of productivity.

The jury is still out as to whether remittances help to reduce poverty. While the PwC report posits that “it is evident that remittances can have a strong impact on development, both at the macro and micro- level, especially as it has a multiplier effect on consumption, investment and economic growth,” a World Bank report on Latin American remittances notes, “in theory, given that in many cases remittances go to poor households and that remittances directly increase these households’ level of income, an unequivocally positive answer could be expected.”

It is unsurprising that the impact of remittances on poverty and inequality is less than straightforward. After noting that “very little attention has been paid to analysing the poverty impact of these financial transfers on developing countries,” a recent study on global migration and remittances tentatively concluded, “on average, a 10per cent increase in per capita official remittances will lead to a 3.5per cent decline in the share of people living in poverty.” While “remittances are not a panacea for poverty reduction,” they do play an important role, albeit one that is highly contextual and varies across countries.

What is required, according to PwC, “is a coherent policy framework to harness remittances into generating capital for productive investments for the growth and development of small and micro-enterprises, which will in turn, create employment. In addition, remittances can be deployed towards philanthropic activities, which can serve as solutions for specific deficiencies in the local infrastructure such as schools, hospitals and roads.”