CBN: Diaspora remittances are there any economic implications?

CBN supports Lagos Blue Line project with N60bn, CBN, Bankers’ Committee orders banks closure

It is a well-understood ideology in economics that remittances from the nationals of a country residing abroad could present a huge potential in lifting developing economies. For critical thinkers, the subject of foreign remittances incentivization with naira and its effect on the Nigerian economy require a better understanding from policymakers. Not many Nigerians would be averse to policy changes or adjustments, but such policies must have a positive effect on the lives and livelihoods of the people.

The Central Bank of Nigeria (CBN), through a circular released to the Deposit Money Banks (DMBs) and the International Money Transfer Operators (IMTOs) on 5 March, had said, “in an effort to sustain the encouraging increase in inflows of diaspora remittances into the country, the CBN hereby announces the introduction of the CBN Naira 4 Dollar Scheme”. This, it said, is an incentive for senders and recipients of international money transfers.

What this implies is that for every dollar remitted to the country, the recipient gets 5 Naira. The DBMs in response to the circular have started encouraging their customers to open domiciliary accounts in order to benefit from the incentive. I have received a message from a bank few days ago, saying, “get paid for every dollar received through IMTOs or Domiciliary Accounts”.

However as good as remittances are in growing national income, a somewhat careless approach that subjugates the dignity of an economy indirectly to the foreign economy should not be encouraged by a forward-looking government.

The question that should readily come to mind is, is government through this policy, encouraging emigration? The policy makers seem to have either forgotten or discountenanced a culture of excessive dependency on diaspora inflows, inactivity and reduction in labor force participation especially in an undeveloped economy.

Indeed, for now Nigeria is practically consumption-centered with a very slow economic growth, and as such, it is expected that such policy should be balanced with a relentless push for vibrant productive activities that encourage export promotion. It is important that the CBN should be clearer on the somewhat smart N5 incentive to every dollar received, otherwise it may send wrong signals that the Nigerian government has given up on the solution to the many economic problems facing the country, while anchoring the nation’s economy on foreign inflows for sustainability.

While it is necessary that the policy makers should always bring up a defence for actions taken, it is however clear that the productive sector has not exhibited the expected vibrancy that could reposition the economy to a position of less dependence on foreign exchange. At a macro-economic level, professionals have posited that remittances could hurt exchange rates and the export sector through “Dutch disease”.

“Dutch disease” is a coinage from the crisis in the Netherlands following the discovery of large quantum of natural gas reserves, leading to the negative impacts of large increases in a country’s income, whether from natural resources, foreign direct investment, foreign aid, or remittances. The increases led to a decline in the competitiveness of a country’s manufactured exports and an increase in imports.

The International Monitoring Fund (IMF) Working Paper, prepared in 2019, had also declared that the empirical results of the research conducted on the impact of remittances on economic activities suggested that the positive effects of remittances inflows could be amplified only in economies that have more developed structures. Another IMF study also revealed that rising levels of remittances could be harmful to the long-run growth of recipient economies through an appreciation of the real exchange rate in recipient economies and therefore generate a resource allocation from the tradable to the non-tradable sector.

The learning point is that Nigeria must put up strong and active structures for development. Remmittances have been useful in the economic growth of countries like India, China, Mexico, Philippines etc, but these countries present better structures that ensure effective channeling of remittances for visible economic development. The policy makers must remember that many Nigerians, whose remittances are being incentivized, left Nigeria due tof the need for survival and better livehood.

With around $20 billion remittances to Nigeria annually, it is enough to say that Nigerian government must encourage resourceful Nigerians in the diaspora by bringing virility to the productive sector such that unnecessary emigration is discouraged.