Nigeria is the largest recipient of diaspora remittance flows with $23.8 billion in 2019. The Central Bank of Nigeria (CBN) recently announced the amendment of procedures for receipt of diaspora remittances. In this Issue-Brief, we look at what the policy dictates and some of its prospects.
Issue-Brief | Oluwatobi Olakanye
The Central Bank of Nigeria (CBN) recently announced the amendment of procedures for receipt of diaspora remittances. The new policy signed by The Director, Trade and Exchange Department, Dr. Ozoemena Nnaji kicked off on the 4th of December, 2020.
The CBN introduced this policy to provide a more convenient channel for Nigerians in Diaspora to remit funds back to Nigeria and after consultations and engagements with relevant stakeholders over smooth implementation. This comes as the World Bank recently predicted that inflow of Diaspora remittance to Nigeria would drop by $2 billion in 2020 to $21.7 billion as against the $23.8 billion the country recorded in 2019 due to the COVID-19 pandemic and the recent economic crisis. Although, Nigeria remains the largest recipient of remittances in the region as it helps to reduce the impact of the economy on Nigerian households and aids foreign exchange. For reference, Naira made big gains on the announcement of the new policy appreciating to close to N470/$1 at the black market.
Speaking at a press conference, CBN Governor, Mr Godwin Emefiele stated that the policy will ensure that recipients of remittance inflows are able to receive their funds in the designated foreign currency of their choice. This is at variance with the previous policy, where inflow through licenced International Money Transfer Operators (IMTOs) such as Western Union, Moneygram, Interswitch and Ria services was paid to beneficiaries in Naira. He said that the IT systems of the IMTOs and the Deposit Money Banks (DMBs) had been configured to begin such remittances from the 4th of December, 2020.
What Exactly Does This Policy Dictate?
The policy allows recipients of remittance inflows to receive their funds in the designated foreign currency of their choice either through commercial banks or IMTOs. The policy gives beneficiaries more access to such foreign currency proceeds, either in cash and/or in their domiciliary accounts. Nigerians who receive foreign transfers through IMTOs can now withdraw in dollars and sell at the black market rate.
Previously, inflow through IMTOs was paid to beneficiaries in Naira. Export proceeds domiciliary accounts will continue to be operated based on existing regulations, which allow its holders use of their funds for business operations only, with any extra funds sold in the Investors & Exporters’ Window. Where accounts are funded by cash lodgments existing regulation will continue to apply.
Prospects Of The Policy
In Africa, Nigeria is the largest recipient of diaspora remittance flows with $23.8 billion in 2019. If the current annual remittance inflow projection of about $24 billion holds, it 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. There will be greater ease and volume of remittance to struggling families from Nigerians in the diaspora. The policy helps deepen the foreign exchange market and provides more liquidity while creating more transparency in the administration of Diaspora remittances into Nigeria. The policy could help finance a future stream of investment opportunities for Nigerians in the Diaspora while also guaranteeing that recipients of remittances will receive a market-reflective exchange rate for their money.
It could result in a huge flow of income into the economy thereby aiding foreign exchange trading and the Naira’s position in the market. The Naira made strong gains at the announcement of the new policy. If the current projection holds, deposit money banks will soon have no need to call on the central bank to provide dollar to fund their imports or commercial operations. They will become independent as regards foreign currencies.
It could also aid the overall development of the economy by the injection of more disposable income from the diaspora to struggling families and households in Nigeria. With increased transparency, the CBN will have improved capabilities to monitor transactions, forestall money laundering and prevent the adverse effect of dollarisation in our economy.
This issue brief was provided by
Olakanye Oluwatobi | Research Analyst, Revenue | firstname.lastname@example.org
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