The disappearing act of remittances

We can see from the CBN’s summary balance-of-payments for Q1 2018 that net current transfers reached US$6.43bn, their highest level of the decade. These inflows, which comprise 95% of workers’ remittances, generally keep the current account in surplus. If we exclude microstates such as Lesotho and Cape Verde, where the diaspora is larger than the resident population, Nigeria has among the highest ratios for transfers/GDP in Africa (6.9% in Q1 2018). The International Organization for Migration cites a figure of 7.4% for Ethiopia in 2014/15.                                                                                    

  • The costs of remittances at both ends of the transaction are high in Africa, although falling as digital transfers are starting to replace the traditional channels such as Western Union. Official figures may be substantially understated.
  • Policymakers like to talk of integrating the diaspora into their development plans in much the same way they mention the PFAs. In both cases the cash is elusive: in the case of the PFAs because it belongs to others and with remittances because the supporting information is minimal. The FGN did, however, raise US$300m from its maiden diaspora bond in 2017.
  • The recipient institutions (banks and money transfer agencies) are not required to ask for any information of the beneficiaries. We have very little idea where the proceeds of remittances are deployed. If the authorities had this data, they could put together policies and incentives for particular sectors.
Current transfers (net; US$ bn)
 

Sources: CBN; FBNQuest Capital Research

  • Forecasting remittances is not a scientific exercise, given the paucity of data on the transactions. The indicators to watch are probably incomes per head in the main remitting countries, which in Nigeria’s case are the US, the UK and Gulf states. On the basis of the IMF’s latest growth projections, we should expect healthy inflows at least through to end-2019.
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