In furtherance of efforts to attract more remittances from Nigerians in Diaspora, the Central Bank of Nigeria (CBN) last week announced its Naira for Dollar Policy that will pay additional N5 for every dollar transferred to Nigeria through the CBN approved International Money Transfer Agencies (IMTA). The policy which came into effect on Monday 8th March if well implemented will likely increase our remittances from about $21billion achieved last year 2020 to about $35 billion this 2021. As weekly remittances have increased from about $5million to $30 million with the earlier policy that now allow remittances to be collected in foreign currencies in Nigeria, it can be said that this current Naira for Dollar Policy is commendable. While some people have described as bribe to get dollars, it is basically a good step to reduce the cost of transfers from abroad to Nigeria.
Among other challenges, a key one to many diaspora Nigerians that want to send money home is the cost of transfer. While it cost about 8.9 percent to send money to Sub-Saharan Africa, the cost to other parts of the world is about 6.8 percent. In addition to the higher costs of sending money to Nigeria, the lack of standard rules has exacerbated the challenges faced by Nigerians and pushed many to the informal money transfer segment. Expectedly, with the high cost, lack of transparent rules and the preference of informal channels, the level of transfer is limited and as such contribute to more scarcity and pressure on Naira.
With the new Naira for Dollar Policy, it means that the cost of transferring $1 is reduced by about N5. For instance, using the current 8.9 percent cost of transfer to Nigeria means that transferring $100 will cost about $8.9. Using an exchange rate of N460 to a dollar means that it will cost about N4,094 to transfer about N46,000 to Nigeria. With the new CBN policy of N5 subsidy for every dollar, it will now cost about N3,594. When compared to the cost of transferring money to other parts of the world, the Africa/Nigerian situation is still higher. Using 6.8 percent as the cost, it means that transferring $100 will cost about $6.8 which translates to about N3,128 as compared to N3,594 to transfer to Nigeria. While the cost of transfer to Nigeria is still higher by about N466.00 for a transfer of $100.00, the gap is narrowing and transfer to Nigeria is getting cheaper.
With the above illustration, it can therefore be argued that the CBN policy which is technically a remittance subsidy is a policy in the right direction. If we want to be more competitive and even cheaper, a better subsidy would have been N10.00 for every $1. That will make transfers to Nigeria cheaper by about N34.00 for every $1 and that is what we should target given the huge population of over 15 million Nigerians in Diaspora. Interestingly, with strategic thinking and negotiation with critical stakeholders, a further reduction of transfer cost to Nigeria is possible.
We therefore commend CBN for the reactive intervention but implore for more of proactive interventions. In addition to further negotiating with transfer agencies such as Western Union, Ria, MoneyGram and Nigerian banks to reduce their transfer and handling charges, the CBN can creatively collaborate with Nigerian banks to further reduce the costs of money transfers.
As these Nigerians in diaspora have been sending in the excess of $20 billion dollars every year, it means that they send in almost equivalent of Nigeria’s annual budget using the current exchange rate of about N460 to a dollar. Meanwhile, we are talking of remittances sent through the formal channels. If we add the ones sent through informal channels such as Nigerians returning from abroad, we will be looking at over $50 billion every year. This is huge asset that is limitedly explored!
First, as some Nigerian banks have branches in major countries and cities, it is an opportunity that can be used to reduce the cost of remittances. A creative arrangement can be made for the remittances to be transferred to the Nigerian banks abroad who will then transfer back to Nigeria through their local branches or other banks in Nigeria. With such collective and direct transfer within the same bank or even two banks, the cost of transfer can be reduced through economies of scale and scope. We are talking of $50 billion business. If Nigerian banks charge 5 percent transfer charge, that is a revenue of $2.5 billion every year. Using the same exchange rate of N460 to $1, means additional revenue of over N1trillion to Nigerian banks.
Second, as Nigerians that will receive the money will ultimately change it to Naira based on prevailing exchange rate, the foreign currencies collected abroad can be utilised to finance imports while the banks pay the recipient Nigerians the prevailing Naira equivalent. A good way to support this approach is the need to have a unified exchange rate and then float the Naira so that the exchange rate can be determined by forces of demand and supply.
In addition to the huge opportunity to increase the remittances, the Nigerians in diaspora can also be effectively used to boost and revolutionise our economy through agriculture. With about 15 million Nigerians in diaspora, only a very small quantity of the foods consumed by them are sourced from Nigeria. Sadly, even when many will prefer Nigerian produced food products, majority of the food products are sourced from South America and Asian countries.
With each of the 15 million Nigerians in diaspora likely to spend about $15 every day on food, it means about $225 million every day and about $82 billion every year. As majority of Nigerians will prefer to consume Nigerian foods, the question is what percentage of the annual $82 billion should be sourced from Nigeria. Another question is why majority of the food products consumed by Nigerians in diaspora are not sourced from Nigeria. While Plantain and Banana are imported mainly from Argentina, Ecuador and Uruguay that are about 14hours by flight to UK for instance as compared to 6hours from Nigeria, Okro and other vegetables and fruits are sourced mainly from Pakistan and India. There is therefore a big opportunity for Nigeria to supply majority of the food products required and preferred by Nigerians in diaspora.
The main reason why the preferred Nigerian food products preferred by Nigerians in diaspora are not sourced from Nigeria is the absence of a properly constructed packaging centre anywhere in Nigeria that meets globally accepted standards. This is where the government, CBN and even the bank(s) can come in to address the challenge and stimulate the economy through agriculture. What is required is to build and manage food packaging centres of international standards near our international airportswith at least one centre in each geo-political zone.
The essence of the above is that with a strategic thinking, Nigerians in diaspora can contribute over $100 billion from food and remittances every year to Nigeria. Imagine the yearly impact of over N40 trillion on Nigerian economy and less privileged Nigerians! The benefits are endless!