The Naira could face another crisis as the gap between official and black market arbitrage, which was almost zero a week after the foreign exchange (FX) rates merged, has widened in a week. Over the weekend, the surplus in the parallel market rose to over N150 per dollar, marking a peak since June 14 when the Central Bank of Nigeria (CBN) announced rate convergence.
Despite these challenging conditions, the liberalization policy and the rise in emigration of young Nigerian professionals are predicted to boost diaspora remittance to $26 billion by 2025, as per Agusto & Co, a pan-African credit rating agency. They argue that improved economic conditions in advanced countries will support this.
Remittances from the diaspora have been crucial in Nigeria’s economy, acting as an important source of FX earnings and stimulating economic growth and development. Nigeria received $20.1 billion in remittances in 2021, the second-highest in Africa, trailing Egypt. However, while Egypt’s inflow growth stayed strong at 16%, Nigeria’s rose just 3%.
Agusto & Co attribute this decline to slow economic recovery and rising living costs in many developed economies in 2022. They expect the increase in emigration in 2022 to eventually result in a rise in remittances as more Nigerians join the workforce in their host countries by mid-2023.
Remittances, they add, have been crucial in supporting Nigeria’s economy, enabling recipients to cover basic needs, pursue education, access healthcare, and undertake entrepreneurial initiatives. Given Nigeria’s high poverty rates, dependence on foreign aid is high, thus the financing of basic needs remains a critical driving force for remittances.
Lastly, the CBN’s move in June 2023 to liberalize the foreign exchange regime, adopting a managed floating exchange rate system, is believed to incentivize remittance inflows through official channels, especially for investment purposes. This could improve the FX liquidity position and facilitate fund repatriation. Agusto & Co anticipate a medium-term surge in remittance inflows due to the significant contribution of students to the emigrating population.