Nigeria’s Remittances Surge 163% In Five Months, Says CBN | Investors King (2024)

The Central Bank of Nigeria (CBN) has reported a substantial increase in direct remittances, recording a 163% surge over the past five months.

The data reveals that remittances totaled $138.56 million in January, $39.14 million in February, $104.90 million in March, $193.31 million in April, and $365.44 million in May 2024.

This dramatic rise from April to May alone accounted for a 90% increase, amounting to an additional $172 million, culminating in a robust total of $365.44 million.

The CBN attributes this growth to strategic initiatives aimed at enhancing foreign currency remittance flows through formal channels.

The CBN has taken decisive steps to respond to various challenges that previously hindered these flows, including the in-principle approval of 14 new International Money Transfer Operators (IMTOs).

This move is designed to streamline processes, eliminate bottlenecks, and encourage more remittances through official avenues.

Sidi Ali, the Acting Director of Corporate Communications at the CBN, emphasized the bank’s commitment to facilitating smoother remittance transactions.

“We are wasting no time driving progress to remove any bottlenecks hindering flows through formal channels permanently. We have a determined pathway and a sequenced approach to tackling all challenges ahead, working hand in hand with key stakeholders in the remittance industry,” Ali stated.

The recent regulatory changes also played a pivotal role in this positive trend. In January 2024, the CBN removed the exchange rate cap previously imposed on IMTOs, allowing for more flexible currency quoting.

This regulatory adjustment was complemented by revised operational guidelines and increased licensing fees for IMTOs, underscoring the CBN’s efforts to bolster the sector’s operational standards and financial requirements.

This surge in remittances comes at a crucial time as Nigeria seeks to stabilize its economy amidst rising external debt obligations.

Recent reports indicate that the Federal Government spent $2.18 billion on debt servicing between January and May 2024, highlighting the significance of foreign exchange earnings from remittances.

The increase in remittance inflows aligns with broader economic strategies aimed at diversifying revenue sources away from oil-dependent revenues.

Despite focusing on domestic borrowing, Nigeria faces substantial external debt servicing obligations.

This fiscal challenge underscores the critical role of remittances in bolstering foreign exchange reserves and mitigating external debt pressures.

The CBN’s proactive measures and collaborations with IMTOs are expected to sustain this positive momentum in remittance inflows.

An economic expert at Lotus Beta Analytics, Shadrach Israel, noted that the substantial increase in direct remittances underscores the effectiveness of recent regulatory reforms and strategic initiatives by the CBN.

“These efforts not only enhance the transparency and efficiency of remittance channels but also contribute significantly to Nigeria’s economic resilience amidst evolving global economic landscapes,” Israel said.

The Nigerian naira continues its downward spiral, making its ninth consecutive day of depreciation against the US dollar and the worst-performing currency in the first half of 2024.

The naira weakened by 0.2% to 1,510 per dollar by the close on Thursday, according to FMDQ.

This persistent decline represents the longest losing streak since July 2017, resulting in a year-to-date devaluation of 40%.

The naira’s performance stands out as the worst among global currencies tracked by Bloomberg, aside from Lebanon’s pound, which is undergoing severe economic turmoil and dollarization.

Analysts attribute the naira’s plunge to a combination of steep devaluation, insufficient dollar liquidity, and market volatility, which have hampered efforts to stabilize the currency.

“While the naira is undervalued and has seen significant adjustment, the supply of dollars needs to improve for the currency to be supported,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London. “Portfolio inflows have yet to pick up, even amid still-attractive local rates.”

Nigeria has been grappling with chronic foreign-exchange shortages and instability, largely due to reduced crude oil production and a lack of economic diversification.

The local unit has lost approximately 70% of its value against the dollar since June 2023, following policy changes introduced by President Bola Tinubu’s administration aimed at attracting foreign inflows to revive the economy.

The currency experienced heightened volatility between mid-April and May, driven by the imbalance between demand and supply for the greenback.

However, this volatility moderated in June with an improvement in dollar inflows.

Central Bank Governor Olayemi Cardoso recently expressed optimism about the future stability of the naira.

“The currency’s volatility may be a thing of the past,” Cardoso stated, highlighting efforts to promote investor confidence.

Since assuming office in September, Cardoso has increased interest rates by 750 basis points to 26.25%, cleared a foreign-exchange backlog, and negotiated multilateral dollar inflows to support the naira.

Despite these measures, the naira’s decline underscores the challenges faced by Nigeria’s economy. The currency’s depreciation has been accompanied by inflationary pressures, complicating monetary policy efforts and economic planning.

Besides the naira, other African currencies such as Egypt’s pound and Ghana’s cedi have also been among the world’s worst performers in the first half of 2024.

“Adjustment and rebalancing in 2024 after years of a heavily managed and misaligned currency regime account for the weakening of these currencies,” Gadio noted. For the naira, “what will matter going forward is whether it can stabilize on improving foreign-exchange inflows and perhaps see some appreciation.”

The ongoing decline of the naira highlights the urgent need for comprehensive economic reforms and effective foreign-exchange management to restore confidence in the currency and ensure sustainable economic growth. As Nigeria navigates these challenges, the path to stabilization remains fraught with uncertainty.

In the aftermath of the first US presidential debate, the dollar saw an uptick in Asian trading on Friday as markets perceived former President Donald Trump as the debate’s victor.

The Bloomberg gauge of the US currency rose by as much as 0.2% before the movement pared back, positioning the index for its sixth consecutive weekly gain.

President Joe Biden’s stumbling performance during the early exchanges of the debate has raised concerns about his capability to secure a victory against Trump in the upcoming November election.

These concerns are echoed by Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney, who stated, “Markets likely extrapolated today’s debate outcome to the actual election outcome in November.”

Trump reiterated his pledge to impose 10% duties on imports if he wins the election, a policy expected to exert upward pressure on inflation.

This potential inflationary pressure could delay interest rate cuts that would otherwise weigh down the dollar.

“Trump’s policies are likely to add to inflationary pressures and escalate trade tensions, thereby supporting US interest rates and the safe haven US dollar,” Kong added.

The debate’s outcome also impacted other financial metrics. Asian currencies remained mostly steady, while the Mexican peso initially dropped almost 1% before recovering to a 0.2% loss.

Treasury yields edged higher, and US equity futures posted modest gains ahead of the Federal Reserve’s preferred inflation measure, due later on Friday.

Despite the rocky start for Biden, Vice President Kamala Harris emphasized that the President finished the debate strong.

However, PredictIt’s live betting odds shifted in Trump’s favor, with his chances of winning the November vote rising from approximately 53% to 58% after the debate.

While US consumer spending data due on Friday could lead to a short-term weakening of the dollar if it shows easing, the dollar is likely to remain robust into the following week.

Investors are bracing for election risks in France and the UK, according to Mahjabeen Zaman, head of FX research at Australia & New Zealand Banking Group in Sydney.

Market sentiment in Asian equities was largely positive, with most regional stock markets advancing during the debate.

Chinese benchmarks recovered from early losses and moved away from technical correction territory, as the absence of hawkish comments on China was seen as a positive surprise by traders.

The Hang Seng China Enterprises Index rose by as much as 0.8%.

Redmond Wong, market strategist at Saxo Capital Markets, described the outcome as a “positive surprise for this part of the world, but only moderately so.”

He added that the political consensus on dealing with China extends beyond the presidential candidates to Congress, suggesting that some escalation of tensions could still occur in the coming months.

Xin-Yao Ng, director of investment at abrdn, echoed this sentiment, stating that while the lack of hawkish comments on China was “probably a surprise,” the bipartisan stance on China policy means there is limited ground for the candidates to attack each other on this issue.

The Central Bank of Nigeria (CBN) has issued a new directive requiring all Deposit Money Banks (DMBs) and International Money Transfer Operators (IMTOs) to pay diaspora remittances in Naira.

This directive was announced on Tuesday in a circular dated June 24, 2024 and signed by Dr. W. J. Him, the acting Director of the CBN’s Trade & Exchange Department.

The circular, addressed to all DMBs and IMTOs, stated that this measure is part of the CBN’s commitment to enhancing the efficiency of foreign exchange markets and encouraging greater remittance flows through formal channels.

Key Details of the Directive

According to the circular, the new policy will require IMTOs to access Naira liquidity directly from the CBN or through their Authorized Dealer Banks (ADBs).

This access is intended to facilitate the seamless execution of transactions for the sale of foreign exchange in the market.

The circular also specified that the CBN would offer same-day settlement for transactions confirmed before 12 noon on a trading date, and pricing for transactions would be based on prevailing Nigerian Autonomous Foreign Exchange Market (NAFEM) rates.

Also, the CBN mandated that all regulatory returns be submitted daily by participants, containing all relevant information on the sources of funds. IMTOs are required to confirm their partner banks and provide standard settlement instructions to ensure smooth implementation.

Supporting the Economy

CBN Governor, Mr. Olayemi Cardoso, reaffirmed the apex bank’s commitment to managing inflationary pressures through conventional monetary policies.

In an interview with Bloomberg in London, Cardoso highlighted recent positive trends in the market, including increased liquidity and improved confidence among market participants.

“We collectively committed to doubling remittance flows through formal channels into Nigeria in the immediate short to medium term,” Cardoso said.

He added that a collaborative task force reporting directly to him had been established to drive progress and address any obstacles to achieving this goal.

Broader Economic Impact

The new directive comes at a time when Nigeria’s economy is grappling with significant challenges. The country’s annual inflation rate reached a 28-year high of 33.95% in May 2024.

However, recent data indicates that month-on-month inflation has slowed for the third consecutive month, suggesting the effectiveness of the CBN’s monetary tightening measures.

The CBN has also taken steps to unify Nigeria’s exchange rate system, which Cardoso noted has helped stabilize the Naira.

“We more or less have one rate now, which allows companies to plan,” he said, emphasizing the importance of a predictable exchange rate for economic planning and investment.

Challenges and Future Outlook

Despite these efforts, the CBN’s new policy faces potential challenges, particularly in its implementation. Market participants must adapt to the new Naira payment requirement, and the CBN will need to monitor compliance closely to ensure the directive’s success.

Looking ahead, the CBN remains focused on achieving economic stability through coordinated monetary and fiscal policies.

Cardoso further emphasized the importance of collaboration in managing Nigeria’s macroeconomic fundamentals and providing the best value for the Naira.

The Monetary Policy Committee (MPC) will reconvene next month to review its policy options and chart the way forward for the economy.