Nigeria emerged as a major recipient of diaspora remittances in Sub-Saharan Africa, capturing approximately 35% of the region’s total inflows in 2023.
This is according to a World Bank report analyzing global remittances in 2023 and projecting inflows for 2024.
The report indicates that Nigeria captured approximately $19.5 billion inflow last year, the highest in the region.
“The regional growth In remittances in 2023 was largely driven by strong remittance growth in Uganda (15% to $1.4 billion), Rwanda (9.3% to $0.5 billion), Kenya (2.6% to $4.2 billion), and Tanzania (4% to $0.7 billion).
“Remittances to Nigeria, accounting for around 35% of total remittance inflows to the region, decreased by 2.9% to $19.5 billion,” the report says.
Ghana and Kenya are also significant recipients of remittances, with inflows of $4.6 billion and $4.2 billion, respectively.
At the lower end of the top ten countries with the highest remittance inflows are Sudan and South Africa, each receiving a total of $1 billion.
The report also reveals that diaspora remittances constitute one-fifth of the Gross Domestic Product (GDP) in countries like Gambia, Lesotho, Comoros, Liberia, and Cabo Verde. These nations heavily rely on these inflows for their economic development.
Diaspora Inflow into Nigeria
According to the report, Nigeria receives $19.5 billion in diaspora inflow, a 2.9% decline from the previous year.
While this percentage is the highest in Sub-Saharan Africa, it pales in comparison to countries with large diaspora populations, such as India, which received approximately $119 billion in the same period.
The report also shows that these remittances came mainly from countries such as the United States and Canada as well as from the United Kingdom, Switzerland, and Italy.
It is also important to note that Sub-Saharan Africa has the highest remittance cost with an average of 7.9% compared to other regions.
These remittance costs include payments such as bank charges, money transfer operator’s percentage as well as stamp duties, among others.
Only 10% ends up in formal FX market
While Nigeria diaspora remittances contributes significantly to the large inflow of foreign exchange liquidity in the country, it is speculated that only about 10% of the total remittances end up in the official FX market.
According to Taiwo Oyedele, the chairman of the presidential tax reforms, most of these remittances do not flow into the formal FX market, thus not contributing to the FX liquidity of the market.
Oyedele noted that most of the funds were externalized through digital transfers from other countries.
According to him, the Nigerian foreign exchange market’s incapacity to absorb these remittances has added to the liquidity shortfall in the market.
“The World Bank said for 2023 our diaspora remittances was about $20 billion. We estimate that more than 90% of that did not get to Nigeria. They were being externalized.
“We’ve spoken to loads of Nigerians almost everywhere and they told us how they send money now. They use digital apps. We have the list of those apps. They use parallel market rates. So, they credit Naira here in Nigeria without bringing the dollars,” Oyedele said.
What CBN is doing
In a recent interview, the governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, said the apex bank has set up a committee to facilitate more inflow of diaspora funds into the official FX market.
He said the committee reported directly to him with the sole objective of doubling the inflow of foreign exchange from the international monetary operations (IMTO).
According to him, this committee has begun to yield positive outcomes with an increase in inflow from Nigerians in the diaspora.
“We’ve had a recognition of the huge role the Nigerian diasporans play in remitting tremendous amounts of money into the system over a period of time.
“We set up a committee which reports directly to me with the goal of doubling the amount of foreign exchange inflow coming from the IMTO who service that segment the autonomous players,” Cardoso said.
Interestingly, the World Bank report also acknowledges some of the reforms the CBN is doing to drive remittance inflow into the country.
“The Central Bank of Nigeria (CBN) has started to unify the foreign exchange market windows by introducing operational changes in the Nigerian Foreign Exchange Market.
The CBN has also outlined new operational modalities for commercial banks, Bureau de Change operators, and international money transfer operators,” the report says.
What you should know
- Despite huge foreign exchange inflow from Nigerians living in diaspora, the country still struggles with huge liquidity challenge in its FX market.
- This is as a result of a formalized system to capture these inflows in the official FX market which may help limit currency volatility that has contributed to the depreciation of the naira.
- Accordingly, the CBN says it’s working to ensure that these remittances are brought into the system to help drive liquidity and stabilize the Naira.
- With such huge inflow coming into the country, diaspora remittances may account for the highest FX inflow in the future, earning more foreign currency for Nigeria than crude oil export.
