By Chinwendu Obienyi
In a significant financial development, the World Bank, at the weekend, revealed that Nigeria secured $19.5 billion in diaspora remittance inflows in 2023.
The report not only highlighted the substantial economic contributions from Nigerians abroad but also acknowledges the ongoing efforts of the Central Bank of Nigeria (CBN) to address the persistent challenges within the foreign exchange (FX) market.
Earlier this year, a tax committee report underscored a critical issue: over 90 per cent of Nigeria’s diaspora remittances, totaling $19.5 billion, circumvented the formal FX market. This diversion has been a major factor contributing to the liquidity problems plaguing Nigeria’s FX market. The World Bank’s comprehensive analysis of global remittances in 2023, alongside projections for 2024, pointed to the high costs associated with remittances in Sub-Saharan Africa—averaging 7.9 per cent—as a complicating factor. Despite a slight decline in remittance inflows, Nigeria still accounted for approximately 35 per cent of the region’s total diaspora remittances in 2023.
The report also highlighted notable growth in remittance inflows across several Sub-Saharan countries, including Uganda (up 15 per cent to $1.4 billion), Rwanda (up 9.3 per cent to $0.5 billion), Kenya (up 2.6 per cent to $4.2 billion), and Tanzania (up 4 per cent to $0.7 billion). Meanwhile, Nigeria experienced a 2.9 per cent decrease in remittances, amounting to $19.5 billion. Other major recipients in the region included Ghana with $4.6 billion and Kenya with $4.2 billion, while Sudan and South Africa each received $1 billion.
The report emphasised the critical role of diaspora remittances in the economic development of several Sub-Saharan nations, where these funds constitute a significant portion of the Gross Domestic Product (GDP). For countries like Gambia, Lesotho, Comoros, Liberia, and Cabo Verde, diaspora remittances are vital, although they are still overshadowed by the massive remittance inflows to countries with larger diaspora populations, such as India, which received around $119 billion in the same period.
Key sources of these remittances were identified as the United States, Canada, the United Kingdom, Switzerland, and Italy. The associated costs of remitting money, including bank charges, money transfer operators’ fees, and stamp duties, were also highlighted.
Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, addressed the pressing issue of the Nigerian FX market’s inability to absorb these remittances. He noted, “We have spoken to loads of Nigerians almost everywhere, and they told us how they send money now. They use digital apps and parallel market rates, crediting Naira here in Nigeria without bringing the dollars.”
In response, the CBN has implemented measures to mitigate these challenges. Governor Olayemi Cardoso announced the establishment of a committee aimed at increasing the inflow of diaspora funds into the official FX market. The World Bank acknowledged that these efforts are starting to show positive results, with the CBN working to unify the foreign exchange market windows and introduce new operational modalities for financial institutions and international money transfer operators.
Despite these initiatives, the formal FX market’s inability to fully absorb remittances remains a significant issue, contributing to liquidity shortages and currency volatility. However, the CBN’s ongoing efforts are poised to integrate these remittances into the official system, enhancing liquidity and stabilizing the Naira. This strategy holds the potential to make diaspora remittances a more significant source of foreign currency than crude oil exports in the future.