- Experts want transfers directed towards productive investments
- How to attract, sustain Diaspora remittances – OPS
Nigerians in the diaspora have remitted a record $1.5 billion to the country in the first half of 2024, with an unprecedented $553 million sent in July alone, according to data analyzed by THE POINT.
The surge highlights the crucial role remittances play in boosting Nigeria’s foreign exchange reserves amidst ongoing forex challenges.
The Central Bank of Nigeria has repeatedly acknowledged diaspora remittances as a key source of foreign exchange, supplementing Foreign Direct Investments and Portfolio Investments.
With a target of $1 billion monthly in remittances, the CBN has introduced reforms to encourage inflows through formal channels.
While January saw remittances rise to $138.56 million—75% higher than the same period in 2023—February witnessed a steep decline to $39.14 million.
In March, inflows rebounded slightly to $104.90 million. However, the first quarter saw an overall 62% year-on-year decline compared to 2023, signaling challenges early in the year.
The second quarter showed marked improvement, with April remittances climbing to $193.31 million and May witnessing a sharp increase to $365.44 million. The positive trend culminated in July’s record-breaking $553 million.
The CBN attributed this growth to policies aimed at boosting remittance flows.
Among these is the introduction of 14 new International Money Transfer Operators and granting them quick access to naira liquidity.
Additionally, the “willing buyer-willing seller” model has reduced disparities between official and parallel market exchange rates, encouraging formal remittance channels.
Since he assumed office last year, the CBN Governor, Olayemi Cardoso, has intensified his engagement with Nigerians in the diaspora as well as foreign investors, hosting forums and town hall meetings to understand their needs and concerns.
“If remittances are directed towards productive investments, it signals that Nigeria is becoming more attractive to both foreign and diaspora investors.”
The driving force has been his desire to continue to encourage the flow of remittances to the country.
According to the CBN Governor, having addressed concerns raised by IMTOs and with the assurances from Nigerians in the Diaspora, the apex bank was confident that it would attract $1 billion monthly remittances.
According to Cardoso, “In the earlier stages of the reforms, IMTOs were having issues transferring money back to Nigeria, and we felt it was important to engage them, and we did. As a result of that engagement, we identified particular problems, of which a lot of responsibility was shared.
“With the recent announcement by Nigeria Interbank Settlement Systems (NIBBS) on Bank Verification Number (BVN), and other products that the banking industry is offering, and through engagement with the diaspora, we believe we will be able to move accordingly and again, rising from that engagement, we put our sights on increasing the inflows to $1 billion monthly and I’m confident that we will get there.”
Experts, however, stressed the need for strategic allocation of remittances.
The Registrar of the Institute of Finance and Control of Nigeria, Godwin Eohoi, called for investments in developmental projects to maximize the benefits of remittance inflows. “If remittances are directed towards productive investments, it signals that Nigeria is becoming more attractive to both foreign and diaspora investors,” he noted.
He also highlighted disparities in remittance levels, pointing out that many Nigerians abroad face financial challenges compared to their counterparts in countries like India, which recorded $107 billion in remittances in 2023.
The Director General of the Nigeria Employers’ Consultative Association, Adewale-Smatt Oyerinde, stressed the significance of diaspora remittance, noting that with a large and growing number of Nigerians living abroad, many of whom send money back home, it serves as a vital source of foreign exchange for the country.
Oyerinde said, “The current economic challenges and perceptions have limited the potential of diaspora remittances, as much of the funds are spent on daily needs like food and shelter. To maximise their impact, remittances should be directed toward driving investments.”
He emphasised the need for the government to build citizens’ confidence abroad and create a business-friendly environment to encourage diaspora investments.
The NECA boss said, “While making and remitting money is crucial, the Central Bank’s main challenge is that much of the diaspora remittance bypasses the banking system.”
Oyerinde highlighted that much of the foreign exchange entering Nigeria discreetly is significantly larger than what flows through the banking system.
He urged the government to foster confidence and ensure returns to attract more formalised diaspora investments.
Also, the President of the Association of Senior Staff of Banks, Insurance and Financial Institutions, Olusoji Oluwole, said, “Diaspora remittances increase the external holdings of the country and financial institutions if sent in a tradable currency like the US dollar. These reserves fund productive activities that will in turn aid development.
“Even though these remittances are meant to augment the income of beneficiaries, some of them invest them in profitable ventures which again are good for the economy particularly the informal sector where jobs are created and provide additional tax income for the government.”
Also, a financial analyst, Tuyor Otubanjo, said, “Harnessing diaspora remittances and investments effectively requires a multi-pronged approach, including improved governance, transparency, and accountability.
“By creating an enabling environment and leveraging the financial and intellectual capital of its diaspora, Nigeria can transform remittances into a strategic resource for sustainable development.”
The Chief Executive Officer, Nigerians in Diaspora Commission, Abike Dabiri-Erewa, said recently that diaspora remittances are the highest source of foreign exchange to Nigeria.
Dabiri-Erewa said that citizens in the diaspora “are engaged either as individuals or as groups in all sectors of the Nigerian economy. There are many other commercial initiatives by Nigerians in the diaspora worth millions of dollars contributing positively to the gross domestic product and national development.”
The NIDCOM boss said that “diaspora remittances are the highest source of foreign exchange to Nigeria and contribute more to Nigeria’s Gross Domestic than oil”, saying, “according to CBN, in July 2024, Nigeria recorded $553m diaspora remittance, the highest ever.”
According to the World Bank, Nigeria received $20.1bn in diaspora remittances in 2022, representing 4.7 per cent of the country’s Gross Domestic Product.
This contribution highlights the vital role of the diaspora in stabilising the economy amid declining oil revenues and global financial uncertainty.
A 2023 report by PwC projected that diaspora remittances could hit $34.8bn by 2028 if properly harnessed. However, the transformative potential of these funds extends beyond individual welfare; they can catalyse infrastructure development, industrial growth, and job creation.
Despite the impressive inflows, experts argue that Nigeria has yet to fully capitalise on diaspora remittances for national development.
Also, a 2022 study by the African Development Bank revealed that only 25 per cent of remittances are channeled into productive investments, with the remainder primarily used for consumption.
However, to reverse this trend, the Nigerian government has introduced several initiatives to attract diaspora investments. The establishment of the Nigerians in the Diaspora Commission and the launch of diaspora bonds in 2017 were steps in engaging the diaspora community.
The government had noted that the diaspora bond raised $300m, reflecting the trust and willingness of Nigerians abroad to invest in their home country.
However, the OPS says more structured policies are needed to unlock the full potential of these investments. For instance, creating incentives such as tax breaks, investment guarantees, and access to land for diaspora investors that promote a business-friendly environment could significantly boost participation.
Recall that the Central Bank of Nigeria introduced the Naira4Dollar scheme in 2022 to boost exports and attract foreign direct investments. Through this initiative, the CBN provided a rebate of N5 for every $1 remitted by exporters and investors via licensed International Money Transfer Operators.
Yet, high transaction costs and exchange rate disparities remain obstacles.
A World Bank report noted that Nigeria’s remittance costs are among the highest in Sub-Saharan Africa, averaging 8.9 per cent.
Remittances to Nigeria have fluctuated over the years, peaking at $23.81 billion in 2019 and dropping to $19.5 billion in 2023.
Analysts attribute these trends to past forex policies, such as the naira peg under former CBN Governor Godwin Emefiele, which discouraged foreign investment.
With current reforms aimed at fostering a unified forex market, experts remain optimistic.
“The July surge is encouraging, but sustained growth will require continuous policy improvements to attract both remittances and FDI,” Eohoi added.
As Nigeria navigates its forex crisis, he added that diaspora remittances are emerging as a vital economic lifeline, with the potential to drive development if strategically harnessed.
As of 2022, a World Bank report stated that Nigeria received $20.1 billion in remittances, ranking 6th globally.
This accounted for approximately 4% of her GDP, with the top remittance-sending countries being the United States of America, the United Kingdom, Canada, Germany, and Italy.
Conversely, Foreign Direct Investments in the same year totaled $468.1 million, according to data from the Nigerian Economic Summit Group.
In the same year reference, India ranked first, receiving over $111 billion, while Mexico ranked second with over $50 billion.
Remittances have been a game changer for the economies of India and Mexico.
In the latter, for instance, remittances have become one of the largest sources of financial flows, rivaling Foreign Direct Investment flows.
These funds have helped alleviate poverty and support day-to-day expenses, essentially subsidising household consumption. Research shows that municipalities in Mexico receiving remittances have higher economic growth and development compared to those that don’t.
