The CBN’s balance-of-payments data for Q3 2017 show a continuation of the upward trend in workers’ remittances/transfers since the fx reforms earlier this year. We suspect that the principal drivers of remittances through recorded channels are the ease and cost of transactions. The World Bank indicates that transfer costs to sub-Saharan Africa are among the most expensive in the world, at an average 9.1% of the transaction. These costs have spawned the emergence of digital transfer operators in competition with the traditional players in the field.
Transfers through hawala and other informal systems are substantial, we assume. Yet if the bureaux de change and other intermediaries raise their game, and transaction costs decline, then we should see a shift towards formal channels. The latest annual total (of US$19.5bn in 2016) can surely be bettered when we allow for the size of the Nigerian diaspora, estimated at up to 18 million people.
The receiving institutions in Nigeria are not required to document the purpose of remittances. One London-based transfer company estimates that 80% of the transactions it handles are made for family support.
The FGN raised US$300m from the sale of diaspora bonds in Q1 2017. Purists may disagree that it was strictly a diaspora bond. However, the FGN’s financial advisors have prepared the ground for a repeat sale.
Remittances of US$5.71bn in Q3 2017 were the highest since Q4 2010 (US$5.75bn). We expect a decent increase for the current quarter, which generally sees the largest inflow of the year due to the holiday season.