He also notes that while some Nigerians may resort to Cryptocurrency as an alternative route,   the absence of implemented systems to monitor concurrency transactions within the economy will diminish the benefits of increased cryptocurrency usage in Nigeria.

He was however of the opinion that the impact of the policy on the Nigerian economy will be contingent on the adaptability of its financial ecosystem.

He made this known in an exclusive interview with our correspondence on Monday when airing his views on the recent policy of the government through the Central Bank of Nigeria (CBN) directing International Money Transfer Operators and banks to halt the payment of dollars to their customers, but instead pay the naira equivalent.

Earlier, the Central Bank of Nigeria (CBN) barred international money transfer operators (IMTOs) from paying Nigerians in foreign currencies, which implied that Nigerians abroad would no longer be able to send dollars or any foreign currency into bank accounts in the country.

Our findings revealed that the international money transfer operators (IMTOs), had removed the options of sending dollars or other foreign currency to Nigeria on their websites and mobile applications in compliance with the CBN directive. Consequently, Nigerians abroad are only allowed to transfer the naira equivalent amount of the foreign currency.

Speaking further, he noted that, the core purpose of diaspora remittances is primarily to support families in Nigeria, but was quick to assert that the Central Bank of Nigeria (CBN) directing restricting payout options for International Money Transfer Operators (IMTOs) to only naira will likely prompt the exploration of alternative channels for diaspora remittances.

Among these alternatives, cryptocurrency stands out, particularly given Nigeria’s prominent position as the 6th largest global market for cryptocurrency transactions.

The potential for increased crypto transactions is probable.

Similarly, Mr. Bolaji Babalola, an expert in cryptocurrency related matters, said:

“On the face value, it is a good policy in the sense that most of those payments processed by International Money Transfer Operators (IMTOS), a lot of times ends up in the black market, people withdraw the dollars   and then sells   to the black market because of the higher exchange rates,

He stressed that this policy gives Nigerians the opportunity to get the equivalent of dollars in naira, which means the money will remain in the Nigeria Banking system and the receiver will only get the naira equivalent of the foreign currencies, be it dollars, or pounds, will be in the banking system.

Bolaji raised concern that although the policy was supposed to boost liquidity in the official market, but “the Nigeria factors” will also play out Nigeria’s commercial banks are part of the problems we have when it comes to foreign exchange or currencies especially hoarding and the likes which they had been known for since time immemorial.

So, it should boost liquidity in the official market,  I think some people prefer it, but it is a kind of two phase, someone who offers services to clients abroad may prefer it, and some may not.

Again Afolabi noted that limited literacy levels regarding cryptocurrency usage could pose a significant barrier to increased adoption. Additionally, the fact that cryptocurrencies are not universally accepted for the payment of goods and services limits their usage.

Furthermore, the high volatility of cryptocurrency prices and the absence of robust safeguards against loss or fraud, given the susceptibility of cryptocurrency to cyberattacks and hacking, may hinder its widespread adoption.

He affirmed that an increase in cryptocurrency adoption could potentially divert funds and foreign exchange liquidity to the parallel market, undermining the immediate objectives sought by the CBN’s directive to restrict USD transfers for IMTOs.

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Diaspora remittances could hold the key to stabilizing the naira and unlocking the immense potential within Nigeria.

Given Nigeria’s substantial diaspora population, the country has received the largest inflow in Sub-Saharan Africa. The recent devaluation of the naira has placed significant pressure on the currency, causing it to reach a new low of nearly 1000/$.

The solution to safeguarding the naira may rest with Nigeria’s diaspora population, with the United States, United Kingdom, and Canada emerging as prominent destinations.

In 2022, Nigerians sent home 21.9 billion dollars, a figure projected to rise to 26 billion dollars by 2025 according to Augusto and Co’s projections. To provide context, Foreign Direct Investment (FDI) for the same period was a negative 187 million dollars, as stated by the World Investment Report 2023.

Diaspora remittances accounted for 4.2% of Nigeria’s Gross Domestic Product (GDP) in 2022, and this figure could grow further with the right policies.

According to a 2017 report from the Migration Policy Institute, Nigeria boasts the most educated migrant group in the US with many in high paying profession in Science, Technology, Engineering, and Maths (STEM). 

In the UK, as reported by www.thenationalnews.com with data from the Office of National Statistics, “Nigerian immigrants exhibit high levels of educational achievement, with 66 percent having attained some form of qualification. This outpaces other large immigrant groups in Britain, including Indians and South Africans.”

This educational background positions Nigerians for management roles with substantial remuneration. Hence, Nigerians as a diaspora bloc possess immense economic power capable of transforming their home nation. Increased inflow could inadvertently impact the value of the naira.

What strategies could the CBN employ to stimulate remittances?

Fola Shonubi, the acting Governor of the Central Bank of Nigeria (CBN), addressed the fall of the naira in a recent speech at the National Institute for Security Studies, attributing it to remittances through unofficial channels.

He remarked, “With those remittances, the dollars have come in; we know the dollars have come in, but we don’t see them in the official system. So, they must be going somewhere and somewhere.”

The CBN can introduce incentives to promote remittances through official channels. The recent unification of the exchange rate is a policy likely to encourage remittances through official routes.

Another policy approach could be inspired by the Philippines’ model, focusing on reducing the cost of remittances as advocated by the World Bank. The World Investment Report 2023 noted, “The costs of sending remittances to the Philippines from other countries in the region are among the world’s lowest because of efforts by the government and the private sector to develop digital platforms and expand information on remittance services.”

According to a report by cenfri.org in 2019, the cost of sending remittances to sub-Saharan Africa amounts to 9.3% of the transaction’s value, in contrast to the global average of 6.9%.

With $20.1 billion in remittances in 2021, Nigeria was the second-highest recipient in Africa, trailing only Egypt ($28.3 billion).

Although Egypt and Nigeria received over half of all remittances to Africa, the rise in inflows into Egypt remained robust, at double digits (16%), while growth in Nigeria slowed to 3%.

Remittances have proven to be positively correlated with the income of immigrants and economic conditions in the sending countries.

The slow economic recovery and cost of living crises that confronted many developed economies in 2022 were indicative of this trend and constrained remittance flows into Nigeria.

This was further exacerbated by the implementation of capital controls and other unpopular policies by the Central Bank of Nigeria (CBN), which restricted inflows through official channels.

Remittances from the diaspora have played an increasingly essential role in Nigeria’s economy, serving as an important source of foreign exchange earnings and a catalyst for economic growth and development. As more Nigerians, discouraged by the country’s gloomy economic conditions, look overseas for opportunity, their remittances will continue to play, a crucial role in sustaining the Nigerian economy.

The growth of these funds has been exceptional, empowering dependents to meet their basic needs, pursue education, access healthcare, and embark on entrepreneurial endeavours.

Mass Emigration (japa Wave) – A double-edged sword

Nigeria has been dealing with the challenge of emigration and brain drain for decades as a result of the rising number of people fleeing in search of greener pastures amid the country’s dim economic prospects. This growing trend in emigration has been informally tagged “Japa” – a Yoruba word that translates to “flee or run away”.

As more countries, particularly highly sought-after destinations, have become more welcoming of immigrants as a result of the global labour shortage experienced post-COVID-19, there are now more opportunities than ever for migrants seeking employment in environments with improved economic and living conditions.

However, this widespread exodus has left many businesses severely understaffed, which has stunted the expansion of a variety of industries and lowered tax revenues for the government. Nonetheless, remittances from the diaspora provide foreign exchange and capital injections to stimulate economic activity. Remittances are also often utilised to support the livelihoods of dependents back home.

Agusto & Co. believes that the surge in emigration witnessed in 2022 is yet to translate to a commensurate rise in remittances as the majority of the emigrants are students who will not be able to fully join the labour force in their host countries until mid-2023.

Increased Channels of Remitting Funds – Surge in Money Transfer Operators (MTO)

In recent years, the rapidly growing global adoption of mobile devices has driven the use of digital technology in remittance services and cross-border payments. COVID-induced movement restrictions have significantly amplified the utilisation of digital money transfer channels. It is estimated that in 2021, following lockdowns and border closures across the world, mobile phone payments spiked by 48%.

Furthermore, there has been a shift to Fintech MTOs, which provide users with a faster, more convenient, and cost-effective remittance experience. Traditional MTOs have begun to adjust to the new normal by building a hybrid structure. Agusto & Co. believes that this structure gives businesses an advantage by allowing them to benefit from the dependability and convenience of physical locations as well as the accessibility of digital solutions by having both a digital presence and a real address. 

Outlook

Nigeria’s emigrant base is currently skewed towards the economically productive middle-class demographic, which is positive for remittances and underpins the need to devise strategies targeted at this age group to ensure the sustainability of remittances. However, given the significant contribution of students to the emigrating population, Agusto & Co. expects a surge in remittance inflows in the medium term.

In June 2023, the CBN liberalised the foreign exchange regime, doing away with market segmentation, collapsing all the segments into a single exchange rate window – Investors and Exporters (I & E) Window – and adopted a managed floating exchange rate regime. We believe that the unification of exchange rates would also incentivise remittance inflows through official channels, particularly for investment purposes, as it is likely to improve the FX liquidity position, which would facilitate the repatriation of funds.

Therefore, Agusto & Co. expects remittance flows into Nigeria to rise to about $26 billion by 2025. This will be supported by improved economic conditions in advanced economies.

Given Nigeria’s high poverty rate, which increases reliance on foreign aid, Agusto & Co. also anticipates that the need to finance the basic requirements of dependents to remain the most important element driving remittances in the near to medium term.