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Naira4Dollar Scheme Will Attract More Investments From Nigerians In The Diaspora – CBN

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The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele has said, the newly- introduced ‘Naira 4 Dollar Scheme’ is aimed at not just increasing remittance inflow into the country but also to cut back on rent seeking activities.

Emefiele had explained that the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities, even as he expressed optimism that the new policy measure would encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.

 

He said the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilising the exchange rate and supporting accretion to external reserves. He also added that it would provide an opportunity for Nigerians living abroad to make investments in their home country.

While noting that the average cost of sending $200 worth remittances to Nigeria from the United States was about 4.7 percent, he said, studies had shown that even a one percent decrease in cost of sending remittance could result in a significant boost in inflows.

“Countries in South Asia such as Pakistan and Bangladesh are aware of this impact and they introduced reimbursement schemes to support inflows. In Pakistan, the scheme which is known as free send has enabled that country to record over $2billion amount of inflow in a month even during the COVID-19 pandemic.

“Bangladesh introduced its own scheme in June 2019, which is a two percent rebate on remittance inflows. Following this action, they have also seen a 20 percent boost in remittance inflows,” he explained.

Commenting on the issue of round-tripping, CBN acting director, Corporate Communications Department, Osita Nwanisobi explained that there was a maximum amount that could be remitted through an IMTO, adding that, no customer could send $100,000 through an IMTO.

 

Though he admitted that the CBN action does not go far enough in offering total reimbursements, Nwanisobi said, it was a step in the right direction to reduce the cost burden for Nigerians remitting funds to Nigeria.

While also noting the existence of initial challenges of network integration, Nwanisobi reiterated Emefiele’s assurance that the CBN would continue to work assiduously to resolve the few challenges that were remaining.

 

This is as analysts and operators in the foreign exchange space said the policy which is to run for just two months would be an incentive that would drive convergence of rates at the foreign exchange market.

The CBN at the weekend had announced the scheme which would pay N5 for every dollar remitted into the country through international money transfer operators from today, Monday March 8, 2021 till May 8, 2021.

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), has lauded the newly- introduced Naira-4-Dollar Scheme by the Central Bank of Nigeria (CBN).

The scheme was to encourage increase of diaspora remittances into the country.

The CBN in a circular dated March 5, 2021, directed all Deposit Money Banks (DMBs) and International Money Transfer Operators (IMTOs) to henceforth pay recipients of diaspora remittances N5 for every USD1 received as remittance inflow.

Director-general, NACCIMA, Amb. Ayoola Olukanni, reacting to the scheme, on Sunday in Lagos, identified diaspora remittances as an important component part of inflow of foreign exchange into the Nigerian economy.

Olukanni noted that foreign exchange remittances contributed as much as six per cent to the nation’s gross domestic product (GDP) and was economically significant in meeting Nigeria’s developmental aspirations.

He stated that a proper implementation of the scheme might have positive impact on the nation’s modest exit from recession, boost foreign exchange input and hopefully result in the reduction of pressure on the Naira.

The NACCIMA DG, however, stressed the need for focus on other areas of non-oil exports in the nation’s quest to shore up its foreign exchange remittances.

He also called for appropriate incentives to boost foreign exchange by scaling up non-oil exports.

“Diaspora remittances have always been identified as an important component part of inflow of foreign exchange into the Nigerian economy. This is perhaps what inspired this “Naira-4-Dollar Scheme” by the CBN.

“Annual figures in recent years range from 22 billion dollars in 2017 to 23.63 billion dollars in 2018 and the projection before COVID-19 was that it will go as high as 35 billion dollars by 2023.

“As the global economy rebounds and takes a new upward trajectory, I am of the view that this is why the CBN has taken this strategic option to encourage remittances from the our Diaspora which is quite huge and located across the world.

“Properly implemented, I think it may have positive impact on our modest exit from recession, boost our foreign exchange input and hopefully result in reduction of pressure on the Naira.

The head of research at United Capital, Wale Olusi noted that the move by the CBN is expected to not just increase inflow but also help in the convergence of rate at the foreign exchange market.

This, he however, noted is based on if the scheme is able to achieve what it is intended for. If it works, he said it would be “an incentive for people to bring in dollar for diaspora through remittances.

“CBN needs about $4 billion to $5 billion to stabilise the currency market. The size of the remittance into Nigeria annually is a little above $20 billion. I think it is a smart move to do whatever it is that you can do as a central bank to capture the remittance segment of the inflow.

“N5 on every dollar is about 1.2 per cent of the transaction cost of the remittance and I think it is cheaper than what we have been burning on Open Market Operations (OMO) that we are selling to Foreign Portfolio Investors (FPIs) and banks to attract inflow which is currently around 10 per cent.

“So, 1.2 per cent on every transaction is cheaper for the CBN. But everything depends on whether it will work. If it works then it will very quickly lead to a convergence of rates and parallel market rates may appreciate from over N480 to something close to the official rate, they can stop it once that is achieved.”

In the same vein, the president of the Association of Bureau de Change Operators of Nigeria (ABCON) Aminu Gwadabe noted that the Naira 4 Dollar scheme would be an effective tool in checking the volatility in the foreign exchange market.

Highlighting some of the measures that the apex bank has been taking to address the foreign exchange market challenges, Gwadabe said the latest move would be more impactful.

The CBN had taken several steps such as directing that remittances through IMTOs be paid to the receiver in the currency in which it was sent rather than an automatic conversion to naira. The receiver also has the option of either receiving the foreign exchange in cash or through a domiciliary account.

Gwadabe, however noted that with over 6000 members spread across the country and present in remote areas, bureau de change operators ought to be allowed to be part of the remittance industry.

Emefiele had explained that the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities, even as he expressed optimism that the new policy measure would encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.

He said the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilising the exchange rate and supporting accretion to external reserves. More importantly, he said it would provide an opportunity for Nigerians living abroad to make investments in their home country.

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