Implication of President Buhari’s New Diaspora Remittance Policy

24

Today, when Nigerians, old enough, look at the bundles of Naira notes in their bags and what the money can buy, with nostalgia, the once strong purchasing power of the currency before 1st January 1984 resonates. The Naira continual sharp decline in value since 1st January 1984 can be traced to lack of leadership in Nigeria to date. Yet among the key criteria for the recognition, acceptance and doing business with a country are strong currency, convertibility at the foreign exchange and credibility of monetary policy. These in effect determine the size, growth and stability of the country’s economy. It was the absence of leadership from 1984 that enabled the manifestation of all today endemic problems of the country. These in turn accelerated the continual retardment of the country and ability to realise the economic potential that is still at 20% realisation after 60years of independence, amidst of plenty.  

In its new policy on Diaspora Remittance; the Central Bank of Nigeria (CBN) directed that foreign remittance should hence be paid to the recipients by the banks or the International Money Transfer Operators (IMTO) in the same foreign currency the fund was remitted or the designated foreign currency of their choice in cash or simply credit the related foreign currency to their domiciliary bank account. They may only pay cash in Naira if the recipients so elect. In a later supplementary directive by the same CBN, there was a further restriction. The banks and IMTO were directed not to even pay the recipients cash in Naira.

The only issue so far spared in the policy was that money can still be remitted directly into recipients’ Naira bank accounts. But the banks are no longer obliged to send text alert to inform the recipients that money has been paid into their accounts. It is now left to the senders to inform the recipients about the remitted fund and for them to check their accounts for the payment. It is yet to be known whether the withdrawal of the usual bank text alert has something to do with yet another irrelevant policy – the NIN and SIM integration. With the Diaspora Remittance policy, does President Buhari want to;

  • Running the country with the Naira in abreast with foreign currencies?
  • End the already very poor purchasing power of the Naira?  
  • Eliminate entirely the Naira domestic legal tender?

I believe the CBN and its Monetary Policy Committee given the choice would not have formulated let alone adopted the Diaspora Remittance policy if it was not fostered on them by the power above; that is President Buhari. There is no benefit to Nigeria and her economy in the Diaspora Remittance policy whatever favourable comments some writers that are disposed to the Government are making. President Buhari may have been persuaded by those Naira and foreign currencies auctioneers whose main goods of trade are foreign currencies, which are now very scarce in the country due mainly to the current Covid-19 pandemic. Being predominantly northerners who operate the bureau de change (BDC) and hawking foreign currencies at the black markets in the country; President Buhari would have no hesitation to acquiesce to their demand for any policy that would ensure they are well supplied with foreign currencies.  It does not matter to them if such policy was not in the interest of the country and her economy but for the segmental interest of their North.

The implications of the Diaspora Remittance policy on the economy of the country that is already struggling are serious. Some of these are as follow.

-The policy will make the already dwindling revenue at home and foreign reserve much worse.

-It will increase money laundering in the country.

-The ordinary recipients and those with domiciliary account will personally be selling their

 foreign currencies. Those with huge and looted fund in Naira will be buying the foreign currencies from

 them and smuggling the currencies out of the country.

-Many businesses will be pricing their products, goods and services in foreign currencies on pay

 with foreign currency or leave it basis.

-The Naira will be less attractive, acceptable and a legal tender in the country.

-Counterfeit foreign currencies will flood the country.

-Parallel and black markets' rates of exchange will increase as a result put further pressure on the Naira,

 weaken and make its official rate unattractive.

-The economy of the country will take the brunt of all these and become less attractive.

-Capital flight will increase in the country, as you witnessed from 26th September 1986 the

 inception of the auction of the Naira.

There is no amount of policing if any that will normalise all these in a country that is already under policed in the areas that are more critical to the country.

In effect, Nigeria is not short of foreign exchange that warrants the Diaspora Remittance policy in the first place. The fact is all the foreign exchange available, accrue and should have accrued to the country is not officially collected. This is primarily due to continue auction of the Naira since 26th September 1986. Since then, the Naira has not been a convertible currency at the foreign exchange. Over the years, efforts to restore it as a convertible currency at the foreign exchange were frustrated generally by northerners who are predominantly Naira and foreign currency auctioneers. If what need to be done all along were done; Nigeria would not be short or in desperation for foreign exchange at any given time to the extent of introducing this type of primitive measure on foreign remittance.

It should be remembered that remitted fund belongs to the recipient but with the method, mechanism and actual responsibility for transferring money from one country to another; the country of the recipient benefits more from the remittance. This is because the remitted fund increases her foreign reserve. Basically, in a normal country with normal system, when a sender remits fund the recipient country’s Central Bank acquires the amount from the sender at source, save it in foreign reserve and pay the recipient in local currency at the destination. All of these are done through intermediaries such as banks or authorised International Money Transfer Operators, who conduct the transaction. In effect a sender helps the recipient’s country to save own currency abroad in foreign currency without having to export any goods.

Why are some of those who participated in the 2019 general election who moved huge fund into the country for election in Economic Financial Crime Commission (EFCC) net and now in Court for money laundering charges? They were accused of evading the official channel to move fund into the country and thereby denied the country the opportunity to add the fund to foreign reserve. That is the country simply exchanged their foreign currency into Naira at home for them for nothing without having the equivalent foreign currency in foreign reserve. Nigeria did not own the fund that was moved into the country but the owner(s) of the fund owe Nigeria the obligation to follow the normal channel to move such huge fund into the country.  Wherever the fund was exchanged in the country into Naira yet Nigeria ‘own’ all the Naira circulating in the country. You can now see the relevance of foreign remittance to a country who does not actually own the fund.

But if your country’s currency is not convertible at the foreign exchange, you will lose a significant amount of the fund being remitted to your country. This is as the fund enters the country through various informal channels, outside the banking system and undocumented. This is the position of Nigeria today who has a currency, the Naira, that is not convertible at the foreign exchange. Nigeria is not able to capture a significant amount of the foreign money inflow into the country through official and banking system, as the inflow enter into the country through different channels; formal and informal and many of which are undocumented.

Although it is said Nigerians abroad remit about $25bn home annually, it is certain the CBN is not able to capture a significant amount of the fund into foreign reserve. This can be said about the capital and other inflow into the country which are at least about $25bn annually. If these two amounts together with the average or minimum of $50bn Nigeria earns from crude oil and other exports annually accumulate in the foreign reserve; the country will have at least $100bn in the reserve annually. Taken the country’s average annual foreign payment of $35bn into consideration, we will in general have a balance of $65bn ($100 – $35bn) in foreign reserve at any given time. This amount of $65bn is a hefty favourable balance of payment. It will make any bigtime investors to investing in our country with the confidence of being able to repatriate their dividends home anytime without the encumbrance of insufficient or lack of foreign exchange.

The inability of the CBN to capture a significant amount of the inflow into the country’s foreign reserve is as a result of Nigeria not having a convertible currency at the foreign exchange. This creates the leakage of a significant amount of the country’s foreign exchange earnings, as the fund escape official documentation at the informal channels.

The foreign countries who know the actual amount of remittance into our country at any given time through formal and informal channels are able to do so because they have convertible currencies at the foreign exchange, adequate system of control and documentation of every fund that leaves their countries. It is none of their business if our Central Bank is unable to capture all the fund. By our policy, especially the auction and a non-convertible Naira at the foreign exchange, which are the responsibility of the Federal Government, can anyone blame the Central Bank? What the successive Federal Governments ought to have done and what the current Buhari Federal Government should do about the Naira and the apparent shortage of foreign exchange are as follow.

1) The auction of the Naira should hence stop. The Naira should be restored as a convertible currency at the foreign exchange. This would enable all the foreign remittances into Nigeria to go through the formal channels and normal banking system, and accumulate in our foreign reserve. It will allow us to maintain only one and official rate of foreign exchange. It will reduce or eliminate all together the foreign exchange parallel and black markets in the country. What is the level of foreign exchange parallel and black markets in all the countries whose currencies are convertible at the foreign exchange?

A convertible Naira at the foreign exchange would necessitate the introduction of the normal exchange control. Every major economy in the world has exchange control. We have already inadvertently established some of the procedures since the auction of the Naira. For example, over the years, we have limited amount of foreign exchange we release into the auction market daily. We have specific transactions, goods and services upon which the available foreign exchange can be spent These should be the benchmark of the fund to release daily for foreign exchange in a convertible Naira situation. A convertible Naira at the foreign exchange will open up our Stock Exchange to the advanced countries’ stock and money markets and earn us more foreign exchange, where we may not even be short or in desperation for foreign exchange again. How many countries in the West, advanced or less advanced, suffer shortage or in desperation for foreign exchange at any given time?  They do not. This is because they do not have balance of payment problem. With little or no goods and services to export there is always movement of fund into and across their countries at any given time, which enable their constant supply with sufficient foreign exchange.

2) The domiciliary bank account system where some individuals are allowed to hold their accounts in foreign currencies should be scrapped. In as much as the commercial banks can hold some of their funds in foreign currencies for some cash transaction, the individuals and non-banking companies have not the actual need to holding bank accounts in foreign currencies.

3) The Naira should be redenominated. This could be by removing one or two zeros from the current figure of each currency note. For example, if two zeros are removed from the present N1,000 note and it becomes N10 note; the value, worth or the cost of the N1,000 note is then rolled into the N10 note with much savings in cost of each note, such as printing, storage, handling, etc.

4) The CBN should reduce the minimum lending rate to under 5%. This will, among all, make loan cheaper for the businesses who will then be able to improve the economy, create jobs, increase revenue for the Government and able to produce/manufacture for export which will increase foreign reserve.

5) Price Control Commission should be set up to monitor and control arbitrary and unfair prices increase.

6) Islamic systems or Sharia laws should not be brought into Nigeria economic and financial systems in any guise. For the North and its economy to be liberated, get off the ground, grow and enable the rest of the country to live in peace and make progress in earnest the use of Sharia laws in abreast of national laws in the region should stop.

If Nigeria wants to see the economic, etc. light of the day; we must do things in the normal ways and not in the primitive ways that benefit a segment of the country, alienate the rest of the country and rest of the world. President Buhari should immediately scrap the Diaspora Remittance policy and restore the Naira as a convertible currency at the foreign exchange. Nigeria has the fund and economy to continually support the scheme.

Alfred Aisedionlen

Disclaimer - The views expressed in the comment window are your responsibilities as the writer. They are not the views and responsibilities of AfricanColumn.com. Please comment responsibly. Freedom of expression carries with it responsibility. Note; each comment is limited to a maximum of 500 words.

Leave a Reply