Diaspora Remittances: Is CBN’s Naira 4 Dollar Scheme here to stay?
The voracity of the Central Bank of Nigeria (CBN) to swell up its foreign exchange wallet is insatiable and the apex bank has been preoccupied with two things: reducing outflow of foreign exchange to its barest minimum and attracting the hard currencies to keep the reserves afloat of demands.
Diaspora remittances has been a key channel for forex to find its way into the economy and the World Bank emphasised this when it said that not less than $21 billion entered the country through the channel in 2020.
A remittance is money sent by a person in a foreign land to his or her home country. Due to the huge sums involved, remittances are now being recognised as an important contributor to the country’s growth and development
To encourage Nigerians abroad to send home more money, the CBN recently started a campaign tagged ‘Naira 4 Dollar Scheme’, which gives N5 rebate for every $1 sent by Nigerians in diaspora to the country. For instance, a customer that receives $10,000, gets N50,000 as reward.
As the policy took off on March 8, Godwin Emefiele, Governor of the CBN, explained that the rebate money would be paid to the account of the diaspora remittances’ beneficiaries, following receipt of the remittance inflows. The bank further stipulated that the initiative will be ending tomorrow Saturday, May 8, 2021.
Upon the commencement of the campaign, commercial banks in the country swiftly fell in line by notifying their respective millions of customers of the offer and how to go about.
As such, the successes recorded so far by the campaign have been ascribed to the seamless ways the banks have deployed to execute the policy. This has manifested in the country’s foreign reserves.
Effects on reserves?
The ‘Naira for Dollar’ policy of the Central Bank of Nigeria (CBN) has led to positive accretion to the foreign reserves exactly one month after takeoff.
According to data obtained from the apex bank, Nigeria’s foreign reserves on April 1 stood at $34.85 billion, representing $404 million increase compared to $34.41 billion on March 11.
Business Metrics gathered that the appreciation has been partly credited to the ‘Naira for Dollar’ policy which has seen dollar inflows pass through commercial banks, instead of unofficial channels.
Aside this, the continued rise in benchmark Brent crude oil price in the global market has been a major source of motivation for the reserves. The oil price stood at $66.17 per barrel as at April 30, representing about $26.17 above the $40 per barrel benchmark for 2021 budget.
Fitch Ratings, a global rating agency had predicted that Nigeria’s external reserves would rise to $42 billion by year-end.
Also, in a report titled, “Depreciatory Pressures on Key Sub-Saharan African Currencies to Lessen,” Fitch Ratings said that given rising oil prices in 2021, it expects the Nigeria forex reserves to rise to an average of around $42 billion in 2021 (around eight months of import cover), compared to $36 billion in 2020.
“However, this will not negate the impact of persistent depreciatory pressures on the naira, notably as a result of rising dollar demand driven by the domestic economic recovery,” it stated.
Fitch Ratings had hinged the forecast on its expectation that Brent crude would average $53 per barrel, compared to the $43.1 per barrel recorded in 2020. Moreover, the agency anticipated that the CBN would allow the official naira exchange rate to depreciate further over the course of 2021, notwithstanding improved terms of trade and foreign exchange reserves.
Analysts at Financial Derivative Company (FDC) Limited being led by Bismark Rewane, have noted that Nigeria was the 7th largest recipient of remittances in 2018 behind India, China, Mexico, Philippines, France and Egypt.
“However, the World Bank projected a $2 billion drop in Diaspora remittances into Nigeria to $21.7 billion in 2020 from $23.8bn in 2019, due to the impact of the COVID-19 pandemic and the attendant economic crisis,” they said.
How is Naira reacting?
Experts have said that naira would remain stable on the parallel market, hovering around the N480 to N490 level, as the CBN’s ‘N5 for $1’ incentive scheme encourages forex flows to go through banks.
Analysts at Forex Trading Associate, AZA, a global forex dealer said: “We see trading on the Investors and Exporters (I&E) Forex window extending depreciation towards N435 in the short term,” they said in emailed notes to investors.
The naira strengthened on the parallel market, trading in the N485 to the dollar at the end of last week, while depreciating on the official I&E window, from N415 to N420 to dollar.
When the scheme was newly introduced, the FDC analysts noted: “As forex supply increases, we expect demand pressures to ease with a possible naira appreciation especially at the parallel market. Year-to-date, the naira has lost 2.55 per cent at the parallel market (currently trading at N482/$).
“More importantly, the new policy is likely to reduce the premium between the parallel market and the IEFX rates (currently at N71). It will also reduce the cost burden of remitting funds to Nigeria by Nigerians in the Diaspora.”
CBN’s next plan
Seeing its desired results, the Central Bank of Nigeria is not ready to terminate the Naira 4 Dollar campaign any time soon.
As part of efforts to sustain the positive inflows of diaspora remittances into the country, the apex bank has just announced extension of the initial May 8 deadline of the scheme for diaspora remittances till further notice.
The announcement signed Thursday, May 6, by A.S Jibrin, the director of trade and exchange department at the bank revealed.
This should not be surprising as the CBN Governor, Godwin Emefiele, had in a comment reiterated that the scheme was aimed at reducing the cost of remittance inflow, check the activities of round-tripping and also provide Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria.
He further revealed that the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities, further citing that in high optimism, the newly introduced scheme will encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.
With the positive results so far recorded on the scheme, indications are rife that the supposed two-month campaign may be perpetuated by the apex bank to attract the scarce forex while it plans other initiatives that can consolidate on the ‘Naira 4 Dollar Scheme’.