We see from the CBN’s most recent Quarterly Statistical Bulletin (QSB) that net current transfers in the balance of payments (BoP) slumped by -19.3% y/y to USD5.64bn in Q4 ’20 yet rose by 16.3% q/q.
If we take the last three quarters of last year (when Nigeria was exposed to the COVID-19 virus), the decline was 20.8%. Net workers’ remittances accounted for more than 70% of net transfers in Q4 although the proportion is usually above 90% of the total.
Although recent statistical revisions have added about USD500m to net transfers for both Q2 and Q3 ’20, Nigeria still lags many peers in the EM universe. In Kenya diaspora remittances in January-May 2021 of USD1.44bn were running 23.1% ahead of the year earlier period. Still higher growth in inward remittances has been posted by Pakistan and particularly, Bangladesh.
The two South Asian economies benefited from the cancellation of the Hajj for non-Saudi nationals. We note that a large share of the diaspora in both cases is based in the Gulf, which has taken a smaller hit from the virus than, for example, European countries. We also suspect that the diaspora may boost its support of friends and family at home if the government is making market and structural reforms. This applies to Bangladesh.
Additionally, they offer incentives. In Bangladesh the central bank pays a 2% bonus on all remittances. In March the CBN launched its own “Naira 4 dollar scheme”. The incentive may look smaller than that available in Bangladesh, for example. In reality, the CBN does not have a separate series for remittances and its QSB does not yet cover the launch of the scheme.
Explanations for Nigeria’s relative underperformance range from the concentration of its diaspora in Europe and the US to the exchange-rate regime in operation. The CBN is aware of the issue. So, in December it ruled that beneficiaries could take their remittances from licensed international money transfer operators (IMTOs) in US dollars. Separately, it increased the number of authorized IMTOs.
Net transfers in Q4 were again substantially higher than net inflows of foreign portfolio investment (-USD0.48bn), let alone those of foreign direct investment (-USD0.20bn).
The fall in transfers, taken in conjunction with the resilience of merchandise imports, more than compensates for the much-reduced outflow on services (Good Morning Nigeria, 10 June 2021). Nigeria’s current account therefore remains in deficit. A return to surplus in the near term would require a surge in oil export revenue.