The Central Bank of Nigeria (CBN)’s new policy regime on Diaspora remittances is capable of limiting the pressure on the country’s fragile external reserves, quickening economic recovery and alleviating poverty, writes James Emejo
Writing on “Leveraging Migration and Remittances for Development”, the World Bank Manager, Migration and Remittances Unit and Head, Global Knowledge Partnership on Migration and Development, Development Prospects Group, Dilip Ratha, stated that, “Remittances, the money migrants send home to family and friends, provide the most tangible and perhaps the least controversial link between migration and development.”
He noted that, “In times of an economic downturn or a natural disaster or political crisis back home, migrants send a bit more to help their families. Thus, remittances often act as insurance against unexpected adverse events.”
Amidst the adverse impact of the COVID-19 pandemic, which has among other things impaired the economic livelihoods of Nigerians, with massive job cuts and rise in poverty level as well as the current recession, no doubt remittances from Nigerians living abroad could provide the much- needed succour for the ailing economy.
Further highlighting the benefits of migrants’ inflows, Ratha particularly observed that “Since remittances are personal funds, governments have no effective way of directing the use of these funds for specific purposes.
“Yet, governments can facilitate the flow of remittances by reducing the cost of sending money, and promote access to savings, loans and health insurance products linked to remittances.”
He said the government can even reduce sovereign borrowing costs by using future remittance flows as collateral as well as issue Diaspora bonds to mobilise diaspora savings.
To achieve these however, he said governments must strive to improve the quality of data on migration and remittances.
However, some imperfections in the international money transfer system including exorbitant costs of transferring money from developed to developing economies as well as unfriendly domestic regulations appeared to limit the potentials of remittances inflow particularly as a vehicle for development.
The World Bank recently predicted that inflow of Diaspora remittances to Nigeria would drop by $2 billion in 2020 to $21.7 billion as against the $23.8 billion the country recorded in 2019.
The World Bank in a report had hinged the decline in remittances from Nigerians living abroad on account of the double whammy of the COVID-19 pandemic and the attendant economic crisis that has continued to spread.
Globally, the bank had also anticipated that the amount of money migrant workers send home would decline by 14 per cent by 2021, compared to the pre-COVID-19 levels in 2019.
It stated: “Remittances are helping to address the impact on African households. Nigeria remains the largest recipient of remittances in the region and is the seventh largest recipient among LMICs, with projected remittances to decline to around $21.7 billion, a more than $2 billion drop compared with 2019.”
According to the report, remittance flows to low and middle-income countries (LMICs) are also projected to fall by seven per cent to $508 billion in 2020, followed by a further decline of 7.5 per cent, to $470 billion in 2021.
It had stated that the foremost factors driving the decline in remittances included weak economic growth and employment levels in migrant-hosting countries, weak oil prices; and depreciation of the currencies of remittance-source countries against the US dollar.
Obviously laxes in remittances administration had created a situation whereby senders have abandoned the official channels and resorted to informal channels of sending money with the attendant implications.
Earlier in May, a report produced by the United Nations Economic Commission for Africa (UNECA) and NEPAD Agency, at the request of African Heads of State, stated that Illicit Financial Flow (IFF) from the continent was estimated at $854 billion over 10 years at $50 billion yearly.
The report also stated that Africa had the potential to create $400 billion in international reserves, $40 billion and $2.88 billion in diaspora remittances and diaspora excess remittance costs.
However, determined to unleash the opportunities in migrants’ inflows by removing identified encumbrance, the CBN following up on its numerous interventions to stimulate economic recovery amidst the economic crisis, last week, introduced a new policy that grants unfettered access to Forex from Diaspora and other money transfer remittances like Western Union and MoneyGram.
The apex bank further directed all banks to close all naira ledger accounts opened for receiving International Monetary Transfer Operators’ (IMTOs’) proceeds.
In an effort to liberalise, simplify and improve the receipt and administration of Diaspora remittances into Nigeria, the policy allows beneficiaries of Diaspora remittances through IMTOs to henceforth receive such inflows in the original foreign currency through the designated bank of their choice.
CBN Governor, Mr. Godwin Emefiele, explained that the new policy measures would help in providing a more convenient channel for Nigerians in the Diaspora to remit funds back into the country as well as ensure that the funds can contribute to the overall development of the economy.
He pointed out that the apex bank’s policy to allow for unfettered access to foreign exchange from the Diasporas and other money transfer remittances was meant to support improved remittance inflows into the country through official channels.
According to him, the current annual remittance inflow of about $24 billion could help in improving the balance of payment position, reduce dependence on external borrowing and mitigate the impact of COVID-19 on forex inflows into the country.
The CBN governor, however, said following up on the implementation of the new forex and Diaspora remittance policies, the CBN observed some pushback by some of the IMTOs who were “bent on continuing their nefarious activities of undermining our policy by attempting to resist the new policies.”
He said: “This was the reason the CBN had to insist on Wednesday, December 2, 2020, that all DMBs must close all Naira General Ledgers through which the Naira remittances were hitherto being carried out.”
Further giving reasons for the policy interventions by the CBN, Emefiele said: “Based on this premise, we analysed data on IMTO inflows into the country over the past year, and through our investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira-dollar exchange rate, which to a large extent resulted in a significant drop in flows into the country.
“It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining our Foreign Exchange management framework.”
Emefiele further explained that in an effort to boost remittance inflows and foster an environment that would enable faster, cheaper, and more convenient flow of remittances back to Nigeria, the CBN had in November 30, announced a new policy initiative, which would help to support these objectives. Please permit me to apprise you with the content of the new policy measures.
He added that the new policies will be a major game-changer in remittance inflows into the country and great source of financial and economic empowerment for Nigerians amidst the COVID-19 pandemic.
According to him, as a matter of fact, from the data that we have, the way the size of remittance is computed by the International Monetary Fund (IMF) takes into consideration not just the money that come in directly as flows but also what we call the earnings of Nigerians in diaspora in different parts of the world – because they believed and we believe as well that some portion of these monies actually flow back home to support members of their families.
“But it is important for me to draw a parallel; I am aware from data available that for instance, Pakistan even in the midst of COVID-19 receives $2 billion monthly from Pakistanis in diaspora. This is a country that I will say by geography, demography is about the same with Nigeria.”
He said: “So we are hereby saying that if Nigeria is even able to receive even if it’s just $1 billion monthly or $2 billion monthly, I am so damn certain that you all know what will happen to the exchange rate of Nigeria.
“Secondly, I am so damn certain that after some time, in fact, deposit money banks will not have any need to begin to call on the central bank to provide dollar to fund their imports or commercial operations.
“So that is why we are saying that we want to aggressively take on this and see how this would help our economy.”
Emefiele, however, dispelled concerns that the new policies could support money laundering, adding pointing out that the institutions involved in money transfer have good reputation as well as a robust customer identification system in the country.
He said: “I want you to know that even from abroad, where these funds are coming, that is why we talk about institutions that are tested like Western Union, Ria and MoneyGram, which also in those countries where they are domiciled are properly licensed and regulated and I know for certain that countries where they are domiciled would not allow money laundering practices or remittance of funds from those countries into our country to be associated with money laundering.
“On our part here, most of those who would be receiving those funds, they come with some forms of identity card and I know that when they started in 1996 with some forms of identification at that time, First Bank was able to ensure that people who are receiving funds are properly identified and Cam easily be traced talk-less of even today where we even have BVN.”
He said: “I am not saying that BVN is compulsory for you to collect your dollars over the counter but I am saying there would be some forms of identification that makes it easy for those who are receiving funds to receive their monies.
“So the issue of money laundering in my view really does not arise because banks have their KYCs and because over time we will try and encourage a situation whereby those funds are flowing into the domiciliary accounts of the recipient, I believe money laundering issues would have been totally dealt with.”
According to Emefiele, in an effort to liberalise, simplify and improve the receipt and administration of Diaspora remittances into the country, the CBN had moved to ensure that beneficiaries of Diaspora remittances through IMTOs shall henceforth receive such inflows in foreign currency (US Dollars) through the designated bank of their choice.
He said such recipients of remittances might have the option of receiving these funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.
He pointed out that the changes were necessary to deepen the foreign exchange market, provide more liquidity, and create more transparency in the administration of Diaspora Remittances into Nigeria.
He added that the measures would help finance a future stream of investment opportunities for Nigerians in the Diaspora, while also guaranteeing that recipients of remittances would receive a market-reflective exchange rate for their inflows.
Analysts have commended the new CBN policy regime in diaspora remittances describing it as a welcome development.
Speaking with THISDAY on the development, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng said, “Prior to now, diaspora remittances to Nigerians were being received in Naira at official rates and International Money Transfer Operators (IMTOs) were gaining from hoarding and speculation of the FX thereby inflating the parallel market”.
But he said the new regulation will help drive more liquidity into the FX market and reduce the influence of some of the IMTOs and banks in manipulating the space.
Also, former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, described the initiative as a welcome development, explaining that the new policy will address forex scarcity going forward.
He said: “When the CBN restricted cash access to remitted currencies from abroad, they did that to forestall money laundering especially for funds hidden in foreign accounts.
“Secondly, they tried to reduce speculations and arbitraging in the FX market. Thirdly, there may have been scarcity of the foreign currency, so the restriction was to reduce pressure on the demand for same.”
He said: “The unfettered access regime therefore has come to remedy the scarcity of foreign currencies. People who have funds abroad can now have confidence to remit their funds to Nigeria and will be guaranteed access to their funds.
“Before now, such inflows could only be transferred as outflow and not as cash withdrawal. This is therefore a welcome development.”
Nevertheless, Emefiele, emphasised that new policy measures in the country’s remittance programme, are designed to boost and facilitate an efficient flow of remittances sent home by Nigerians in the Diaspora adding that these “changes are as a result of our internal review of the operations of International Money Transfer Operators (IMTO) in the country and the potential impact improved flows could have on our economy.”
Further providing a chronological narrative of developments with IMTOs in the country, along with the policy actions taken by the apex bank in the past, Emefiele said:”In 1996, following the promulgation of a new law which exempted remittances from taxes, the first remittance programme by an IMTO was launched in Nigeria. This private arrangement, with limited involvement by the Central Bank of Nigeria, was between an IMTO, Western Union and First Bank of Nigeria, which was then the only Western Union agent.
“Indeed, I am aware that at that initial stage, Western Union dealt with only First Bank directly, while First Bank of Nigeria, in turn, had other banks as sub-agents. This programme enabled recipients of remittances to receive such funds over the counter in foreign currency, amongst other options. Following the successful launch of this programme, other money transfer organisations launched similar initiatives to provide services to the growing number of Nigerians in the Diaspora who were keen on remitting funds back to Nigeria.”
He said: “However, due to issues around dollar cash availability, some of the remittance operators working with the commercial banks decided to remit funds to recipients in our local currency, at an agreed exchange rate between the banks and the IMTOs.
In 2016, the CBN, in an effort to increase remittance inflows and improve the number of formal channels under which Nigerians in the Diaspora could remit funds, launched a licensing regime to guide the conduct and operations of IMTOs.
“As a result of this new policy measure, 65 International Money Transfer Operators were licensed by the CBN for inbound remittances.”