Early in the month, Governor of the Central Bank of Nigeira (CBN), Godwin Emefiele announced a new directive on Diaspora remittances. The new directive allows all recipients of remittances to collect their funds in dollars. They are also free to keep such funds in domiciliary bank accounts and to withdraw them in the same denominations at any time. The directive is aimed at creating a more attractive environment that encourages Nigerians abroad to wire money home.
This comes at the wake of dollar shortages that have been persistent for much of this year, culminating in the recent fall of the naira in the parallel market.
In recent weeks, our currency has exchanged at a worrisome N500/US$ in the parallel market, as against the N395/US$ official rate. Of recent, remittances have also been declining.
Over the last couple of years remittance inflows averaged about $5,000bn a quarter. They have, however, fallen in recent times to $3.38 billion during the second quarter of 2020. The sharp decline in inflows is probably due to economic downturn in the advanced industrial economies occasioned by the novel coronavirus and the prolonged generalised economic lockdown in those economies. It is also due to the worsening economic and business environment in our country.
According to the global auditing and consulting firm, Price Waterhouse Coopers (PWC), before the year 2,000, remittance inflows was nothing to write home about. However, by 2009, with the benefits of macroeconomic and institutional reforms, together with a more attractive climate deriving from better governance, remittances registered an impressive $18 billion. They rose to $21.16 billion in 2015. In 2017, they rose to $23.63 billion before declining to $22 billion in 2018 and $17.5 billion in 2019. In the last three years, remittances have averaged 83 percent of the FGN budget, 10 times the FDI inflows 7.4 times of ODA.
There is an estimated population of 1.24 million Nigerians living abroad, many of them highly skilled professionals. It is a well-known fact that Nigerians are the single most educated emigrant group in the United States. They have a median income of $68,658, which is well above the national median of $61,937.
Worsening social and economic conditions in our country have been the key drivers of emigration.
A recent Pew survey shows that one in two Nigerian adults say they would consider emigrating abroad in the course of the next five years. The dynamics of Diaspora remittances are determined by, first, the rate and velocity of emigration; second, by the economic conditions prevailing in the host countries; and thirdly economic climate in our country and the attractiveness or otherwise of sending dollars home.
There is no doubting that remittances can contribute positively to collective welfare and long-term economic growth.
Studies by the Geneva-based UN Conference on Trade and Economic Development (UNCTAD) have brought up interesting findings that show a positive correlation between remittance inflows and long-term development.
First, it reveals that, for an emerging economy such as Mexico, for every $2 billion of remittances, production in the overall economy increased by $6.5 billion.
A Ghana case study shows that remittances contributed to nearly 30 percent of the construction boom that the country has been experiencing in recent years.
Evidence from Egypt and the Philippines shows that remittance-receiving households spent more on investment-related activities than on mere consumption. There is also evidence that returnee emigrants with significant remittance savings are more likely to become successful entrepreneurs at home.
In a 2017 econometric study by Dietmar Meier and Adela Shera evidence drawn from panel data insix post-communist East European countriess (Albania, Bulgaria, Macedonia, Moldova, Romania and Bosnia Herzegovina) during 1999–2013 shows significant relationships between remittances and economic growth.
The results also suggest that remittances have a positive impact on growth and that this impact increases at higher levels of remittances relative to GDP.Research by the UN Economic and Social Commission for Asia also showed that remittances have a way of smoothing consumption and easing capital constraints.
But the Asian study cautions that remittances should not be placed at par with the traditional growth engines such as exports, FDI and innovation.
I welcome the new CBN directive. But I worry about the inadequacy of our public discourse on the subject. Diaspora Nigerians are not only a source of cash. They are a reservoir of ideas, knowledge, skills, competencies and global networks for trade and investments.
Last year, Senate confirmed Abike Dabiri-Erewa as Chairman/CEO of the newly created Diaspora Commission. In June 2017, the Diaspora Bond at a coupon rate of 5.625 percent was announced. It was oversubscribed by 130 percent. Some $300 million was raised from that single issuance. There is evidently more potential to tap into that source of investment funding for national development.
But there are challenges. Some Diaspora Nigerians have been involved in large-scale online financial scams. It led to agencies such as Western Union temporarily suspending their operations in our country.
Our national image remains a big liability. When you look at it from the viewpoint of country risk premiums, our poor image is costing us billions of dollars of lost revenue.
There is also the fact that transfer costs still remain prohibitive. About a decade ago, the cost of transferring $200 dollars was as high as 15 percent. It has gone down to about 10 percent on average. But this still substantially above the target of three percent that international experts believe to be the most sustainable. It is self-evident that the high costs of wiring funds are a discouraging factor.
If the costs were drastically reduced, we would witness massive increases in capital flows. It would also mean more money coming into the beneficiary countries.
There is also what I term “the Other Diaspora”. Our focus has been too much on Nigerian Diaspora. As far back as 2003, the African Union opened a Department for Diaspora Affairs at its headquarters in Addis Ababa. They define the African Diaspora as all peoples of African origin living outside the continent who have both a desire and willingness to engage with the Mother Continent and to contribute positively to its collective development.
The rapid growth we have seen in countries such as China, India and Israel owes in part to the ability of those countries to tap into their Diaspora potential. When Deng Xiaoping was embarking upon his ambitious programme of modernisation, he made it a strategic objective to tap into the Chinese Asian Diaspora, who together controlled more than $1 trillion in assets. Same is true of India and Israel.
As a matter of fact, Israel has the Law of Return in its constitution. It accords the right of return, known as Aliyah, to all people who can prove that they are bona fide Jews. It has resulted in massive influxes of capital into Israel.
Ghana has copied that model with great success. President Nana Akufo-Addo proclaimed 2019 as the Year of Return in Ghana. That year commemorates 400 years since the first slave set foot in the United States of America. The scheme encourages the black Diaspora to visit Ghana for tourism as well as business. They are also easing the procedures for those who want to emigrate. It has done a lot of good for the national image of the country and has brought in almost $3 billion in additional capital inflows.
From where I stand, we are only scratching the surface.
Our manifest destiny is to be the guardian and symbol of Africa and the Black race. There are almost one billion people of African origin scattered across the Americas, Europe and the islands of the seas. All of them look to Nigeria for leadership. We are their only beacon of hope in a benighted world.
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