The series of foreign exchange policies introduced by the Central Bank of Nigeria (CBN) in recent times were to curb the myriad of irregularities and illegalities perpetrated by money transfer operators in the country, the apex bank’s governor, Godwin Emefiele, has said.
Emefiele spoke on Saturday at the Fidelity Bank’s inaugural Diaspora Webinar on the implications and impact of the New foreign exchange policy on diaspora investments.
He said remittance inflows reports are constantly marred by irregularities as some money transfer operators unlawfully choose to under-report the inflows.
“Their mode of operation is to report less amount than what they received and thereafter pursue arbitrage premium by selling the unreported excess in other markets at different rates.
“This is our definition of round-tripping, which is wholly illegal in Nigeria,” the governor said.
To correct the observed irregularities and illegalities, Emefiele said the CBN took decisive policy actions, by amending the procedures for receipt of diaspora remittances with the overall aim of improving the administration of remittance flows to Nigeria.
New FX policies
The key highlights of the new FX policies include beneficiaries of remittance flows through an international money transfer organization (IMTO) to only receive such inflows in foreign currency (US dollars) through any bank of their choice, while the recipients are allowed the liberty of choice to receive the dollar either in cash or credit to an ordinary domiciliary account.
Also, IMTOs were mandated to clearly disclose to remittance beneficiaries that such recipients have exclusive discretion to decide the mode of payment, while IMTOs must ensure all funds received in favour of beneficiaries in Nigeria were promptly deposited into the agent bank’s correspondent account;
To reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the CBN on Thursday introduced a, incentive of N5 for every $1 remitted to Nigeria, through its licensed IMTOs.
Emefiele said the new measure expected to commence on Monday, March 8, 2021, would make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora.
He said the new policy on remittance flows was to help increase the transparency of remittance inflows, reduce rent-seeking activities, and provide Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
Besides, the new policy measure would encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.
“We have no doubt that these changes can help to finance a future stream of investment opportunities for Nigerians living abroad.
The use of reimbursements of remittance fees has been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic,” the CBN governor said.
Benefits of diaspora remittances
Acknowledged remittances from Nigerians abroad has significant benefits on domestic income, social welfare and economic growth back home in Nigeria.
Given the depth of skills Nigerians in the diaspora possess, he said an effective engagement with them was vital to maximize the gains they could make in supporting further investment and growth in the country.
Compared to other forms of foreign investments, such as foreign portfolio investments, he said diaspora remittances were less volatile and were not prone to sudden reversals, or influenced by external factors, such as changes in monetary policy by advanced countries.
Following the outbreak of the COVID-19 pandemic in April 2020, Emefiele said emerging market countries, including Nigeria, witnessed a significant reversal of about $100billion worth of financial flows, as investors retreated to safe haven assets such as US treasury bills.
Noting the impact of the pandemic on the global economy, particularly on exchange rate stability, reserve accretion, job creation, poverty reduction and economic growth, the CBN governor said monetary policy thrust was to broaden the scope and scale of diaspora inflows.
This, he said, was to ensure those in the diaspora leveraged formal channels in remitting funds, rather than informal channels that are more susceptible to fraud, in addition to poor safeguards for consumers that utilize these services.
One of the key elements of the Sustainable Development Goals SDGs) was to increase the volume of global remittances as a percentage of the gross domestic product (GDP), while reducing the cost of remittances.
The CBN governor said this aligned with the objective of the CBN and the Nigerian government to mobilize resources towards the quick recovery of the economy.
Global remittance flows
“Following the recent outbreak of the COVID-19 pandemic, global remittance flows to developing countries is estimated to fall by 7.2 percent to $508 billion in 2020, and a further 7.5 percent to $470 billion in 2021,” Emefiele said.
Despite the global decline in remittance flows in 2020, the CBN governor said diaspora remittances remained a major source of stable external financing for developing countries.
The World Bank data showed flows to low and middle-income countries reached a record high of $548 billion in 2019, which surpassed foreign direct investment (FDI) flows of $534 billion and overseas development assistance of about $166 billion.
Consistent with the global trend, the CBN governor said Nigeria’s aspiration was to ensure that remittance flows and diaspora investments became a significant source of external financing of the country’s economic recovery.
With the volatility in foreign direct investments and portfolio flows to the country in recent times, resulting in reversals that exerted significant pressures on domestic market conditions, Emefiele said there was need to boost remittance flow.
To improve the remittance infrastructure, ease the process of international money transfer and simplify the experience for senders and recipients, Emefiele said the apex bank has been considering a number of options.
He said focus has been on the efficiency of remittance services, especially as provided by the international money transfer organizations (IMTOs) to boost inflows and mitigate factors that affect the quality-of-service customers face.
Considering that remittance flows to Nigeria may be largely underestimated given the unofficial transfer routes and incomplete reportage by remittance service providers, the CBN said it took new foreign exchange policies to redress the situation.
Although the CBN said average annual diaspora remittances to the country may be about $24billion, the apex bank said PricewaterhouseCoopers (PwC) forecasts suggest Nigeria’s remittance flows could reach about $34.89 billion by 2023.
The CBN said the forecast could only be realized if remittance infrastructure improves and the right policies are in place.
