Fund managers expectant of remittances as G7 economies rebound

Stories by Chima Nwokoji

| Lagos

THERE are expectations among some fund managers that Nigeria’s relative underperformance in remittance inflow will recover as the economies of the Group of seven industrialized nations (G7) rebound.

The most recent Quarterly Statistical Bulletin of the Central Bank of Nigeria (CBN) shows that net current transfers in the balance of payments (BoP) slumped by -27.1 per cent when compared year on year (y/y) to $4.35 billion in the third quarter (Q3) of 2020 yet rose by 11.6 per cent quarter on quarter (q/q).

For net workers’ remittances, which account for close to 90 per cent of net transfers, fund managers at FBNQuest Limited said the changes were -33.0per cent y/y and 14.8per cent  q/q.

Total foreign remittances into the country rose to $23 billion in 2019 one of the highest on record, helping boost and investments in Nigeria. Poor countries like Nigeria rely heavily on these inflows to soften the low income paid to citizens while also funding millions of families from education to healthcare.

In the early days of the Covid-19 virus, the World Bank foresaw a fall in remittances to EM and frontier states of about 20 per cent annually.

“Looking ahead, we would expect a recovery in remittances as the G7 economies rebound. The IMF’s World Economic Outlook from January has growth in the UK, the US and Canada at 4.5 per cent, 5.1p er cent and 3.6 per cent, respectively, this year,” FBNQuest research team stated in a note to investors.

On the reasons for the decline in remittances, the research team stated that it could be that the Nigerian diaspora has a particularly large presence in those economies that have taken the largest hits from the virus (the Eurozone and the UK).

Also, the exchange-rate regime (ie the sense that the recipient was not getting full value’ in naira) may have been another factor.

According to analysts, the outturn has clearly been worse than the World Bank anticipated in Nigeria.

In Kenya, however, the figure for January-October 2020 was about 9 per cent ahead of the year-earlier period. In Pakistan and, most of all, Bangladesh, where the central bank pays out a small bonus on conversion into local currency, remittances have shown robust growth the FBNQuest said.

For Nigeria, the q/q improvement is probably due to the fact that the low point in the Covid cycle for those G7 economies where the Nigerian diaspora is concentrated was the previous (second) quarter of 2020.

According to the local media, the CBN governor told a virtual conference on February 26, that its regulatory changes, notably the new option for beneficiaries to take their incoming payments from licensed international money transfer operators in foreign exchange (fx), have given a boost to remittances. The changes were announced in early December.

Available records show that Net transfers were again substantially higher than net inflows of foreign portfolio investment ($1.67 billion), compared with those of foreign direct investment ($470m).

This y/y decline in transfers, taken in conjunction with the resilience of merchandise imports according to FBNQuest, more than compensates for the much-reduced outflow on services.

This helps to explain why Nigeria’s current account has not returned to surplus, which would have been the first since Q2 ‘18.

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