The Central Bank on Friday March 5th announced a new policy, the Naira4Dollar scheme in an apparent bid to boost foreign remittance into the country via official channels. While many praised the initiative, they doubted its impact largely on the premise that it was set to run within a short timeframe.
With Thursday 6th November extension, it appears the CBN took a good decision in the right direction. In this article, we take a look at the merits of the extension after some measure of success had been recorded.
The CBN’s Naira4Dollar initiative rewards anyone who remits dollars via banks N5 for every $1 remitted. While it indeed looks juicy on the surface, questions arise as to how effective this will be on the long run in increasing diaspora remittance into the country.
A pointer as to why the CBN decided to embark on the scheme are from two of its research reports, the Balance of Payment and Foreign Currency Flows. While the BoP collates remittances that include cash, goods and services brought into the country by Nigerians in Diaspora, the remittances included in the Foreign Currency flows on the other hand are mostly cash and are perhaps about the best proxy of just how much diaspora remittances in cash the central bank has received through the official banking system.
According to these reports, in 2019, diaspora remittance by Nigerians recorded was $3.3 billion via official channels, the highest the country has recorded in the last 5 years but in 2020 when the exchange rate was devalued and the disparity between official and black market rates widened, remittances saw a dip by as much as 61% from $2.8 billion Q3 YTD in 2019 to $1.09 billion same period in 2020. This drop was attributed to the effects of Covid-19 in the US, Canada and the UK where many Nigerians are based and as such could not not send money back home.
An Expert’s Previous Take On The Initiative
I had earlier spoken with a renowned finance and economics analyst, Mr. Muktar Mohammed and here were his thoughts soon after the scheme was announced:
“Well, it’s a good policy but depends on what the CBN is trying to achieve and I don’t think what they are trying to achieve they will be able to achieve in the shortest possible time because this policy is not one that they want to do forever. It has a time frame therefore, it may attract some foreign investment from the diaspora but will that money be able to sustain and keep the naira at par with the dollar and ensure a uniform exchange rate that we’ve always wanted? I don’t think so.
But in the short term we will see some little bit of results like they came out the other day that the policy has been able to attract $20 something billion dollars into the economy. Fine. But how sustainable is this policy? Remember that this policy has a time frame.
I think what the CBN should have also looked at is the cost of transaction. I think that also could help because it cost about $25 per transaction. And you are telling them to send money that for every $1 they get N5. Nobody is looking at the cost of the transaction that they have incurred in terms of moving that money into Nigeria. So they need to look at that.
And I think again that one thing the CBN is not doing is to come together with the Security and Exchange Commission, Nigerian Stock Exchange to see how they can get Nigerians in the diaspora to invest in Nigeria for a long term purpose not just because they want the exchange rate to be firm. They need to get Nigerians in the diaspora to register, to make sure that they invest in Nigeria and that would act like a foreign direct investment which is something that we’ve not been able to get for a while because that means that fund is going to stay here for a long time.
When you look at the funds that have come into Nigeria from the diaspora, about 70 per cent has to do with upkeep, the remaining 30 per cent is for real estate investment. So what we see is that most Nigerians in the diaspora just send money to their family members here for upkeep.
So we need to see how we can exploit the way whereby most of their money comes in here that will be for long term investment. That will help bring down the exchange rate volatility that we’ve seen thus far.
So for me, I don’t think that policy will achieve the long term desired result. And if you look at it between the time when that policy was implemented and now, the naira has still taken a lot of bashing and moved from 270 to 281 and it will continue to move that way unless we have a policy that is wrapped in investment, both from Nigerians in diaspora and foreign direct investors. And I’m not talking about portfolio investors but about foreign direct investors that are ready to stay for the long haul.
If we begin to attract those kinds of investment then that is when such policies will achieve the desired result.
For the current naira to dollar policy, I don’t think it will achieve the long term unification of the exchange rate.”
So this was Mr. Muktar’s take initially when the scheme was first launched, his take was also expressed by a number of other indviduals. But now that the scheme has been extended, it is a step in the right direction as it will:
1. Ensure that more remittance are captured.
2. The incentive will further enable the country’s record a significant increase in remittance for the year.
3. There will be a considerable uptake in the level of remittance that will be recorded in the financial industry.
