By John Ikani
Nigeria continues to be a remittance leader in Sub-Saharan Africa, receiving the highest total inflow in the region for 2023 according to a World Bank report.
The report highlights that Nigerians abroad sent roughly $19.5 billion back home, accounting for 35% of the region’s total remittance inflows.
However, this figure reflects a slight decrease of 2.9% compared to the previous year.
While Nigeria dominates remittance inflows within Sub-Saharan Africa, other countries like Ghana and Kenya are also significant recipients, attracting $4.6 billion and $4.2 billion respectively.
The significance of remittances is further emphasized by the World Bank report, which reveals that for some nations like Gambia, Lesotho, and Liberia, these inflows from citizens abroad make up a substantial one-fifth of their entire GDP.
Examining Nigeria’s Diaspora Cash Flow
Nigeria’s $19.5 billion haul from its diaspora, though leading Sub-Saharan Africa, falls short when compared to remittance giants like India, which received a staggering $119 billion in the same period.
The report reveals that the United States, Canada, the United Kingdom, Switzerland, and Italy are the primary sources of these remittances.
An important note: Sub-Saharan Africa has the highest average remittance cost globally, at 7.9%. This cost includes fees like bank charges, money transfer operator fees, and stamp duties.
Where Does the Money Go?
While Nigeria’s diaspora cash flow significantly contributes to its foreign exchange reserves, estimates suggest only about 10% reaches the official FX market.
Taiwo Oyedele, chairman of the presidential tax reforms committee, suggests most of these remittances bypass the formal system, hindering FX market liquidity.
He points to digital transfers from other countries as a major avenue for this externalization.
Oyedele argues that the inability of Nigeria’s FX market to absorb these remittances contributes to the market’s liquidity shortfall.
“The World Bank said for 2023 our diaspora remittances were about $20 billion,” Oyedele said. “We estimate that more than 90% of that did not get to Nigeria. They were being externalized.”
He further explains that many Nigerians abroad use digital apps and unofficial channels, taking advantage of parallel market rates to send money home, bypassing the official FX market.
Efforts to Capture Remittance Flows
The Central Bank of Nigeria (CBN) is actively working to attract more diaspora funds into the official FX market.
Governor Yemi Cardoso established a committee dedicated to this goal, aiming to double the inflow of foreign exchange from international money transfer operators (IMTOs).
Cardoso reports positive developments, with an increase in remittance inflows from Nigerians abroad.
“We’ve recognized the tremendous role our diaspora plays in sending money back home,” Cardoso said. “We set up a committee to focus on doubling the amount of foreign exchange coming from IMTOs serving this segment.”
Interestingly, the World Bank report acknowledges the CBN’s reform efforts to boost remittance inflows.
The report mentions the bank’s moves to unify foreign exchange market windows and introduce new operational guidelines for banks, currency exchange operators, and international money transfer operators.
The Future of FX Inflows
Despite the substantial foreign exchange Nigeria receives from its diaspora, the country continues to grapple with FX market liquidity challenges.
Capturing a larger share of these remittances in the official system could potentially help stabilize the Naira and reduce currency volatility.
The CBN’s efforts to attract more diaspora funds into the formal channels could pave the way for remittances to become the leading source of foreign exchange in the future, potentially surpassing even oil exports.
