•Analysts blame Naira pressure, FX scarcity
By Chinwendu Obienyi
Nigeria’s position as a net importer of remittance flows to Sub-Saharan Africa weakened further in 2023 as the World Bank on Thursday, revealed that Mozambique outperformed Africa’s largest ecionomy by 49.5 per cent in respect to inflows to the region in the outgoing year.
This was even as the bank in its latest Migration and Development Brief titled “Leveraging Diaspora Finances for Private Capital Mobilisation”, projected a 2.5 per cent growth in remittances for 2024, reaching $55 billion but noted that the outlook could be negatively affected by measures to control FX, parallel markets and sanctions in certain countries.
The report revealed that remittance flows to Sub-Saharan Africa are expected to have increased by about 1.9 per cent in 2023 to $54 billion, driven by strong remittance growth in Mozambique (48.5 per cent), Rwanda (16.8 per cent), and Ethiopia (16 per cent).
It noted, however that remittances to Nigeria, accounted for 38 per cent of total flows to the region, growing by about 2 per cent, while two other major recipients, Ghana and Kenya, posted estimated gains of 5.6 per cent and 3.8 per cent, respectively.
The World Bank specifically noted that with respect to Nigeria, CBN’s intervention in the foreign exchange market widened the difference between the official and the parallel market rate until the liberalisation in June.
However, it acknowledged that recent pressure on the official market was widening the chasm. It also portrayed a similar scenario in Namibia where the difference between the official market and the parallel market rates rose to around 90 per cent.
It said, “Resistance to the increasing pressure on the Nigerian naira coupled with limited supply of foreign exchange at the official window led to the reemergence of the parallel market premium. Likely, the substantial parallel market premium has significantly diverted remittances to unofficial channels.”
According to the bank, the fixed exchange rates and capital controls are diverting remittances to the region from official to unofficial channels and added that in 2024, remittance flows to the region are projected to increase by 2.5 per cent.
It stated that the forecast of the remittance outlook could be hurt by measures to control foreign exchange, parallel markets and sanctions on some countries.
It will be recalled that for over a year, Sub-Saharan African countries have grappled with substantial exchange rate pressures. According to economic analysts who spoke on the development, most currencies in the region, especially Nigeria, have experienced significant depreciation against the US dollar, which serves as the primary currency for trade invoicing and managing external debt.
Between December 31, 2022, and September 15, 2023, the naira experienced a substantial depreciation, losing nearly 40 per cent of its value against the US dollar.
“For Nigeria, the CBN’s decision to partially float the naira was responsible for the depreciation. The primary drivers behind these exchange pressures are external factors. Furthermore, interest rate hikes in advanced economies coupled with heightened global risk aversion, led to a reduction in net foreign exchange flows into the region”, they said.