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Increasing Diaspora Remittances To Ease Forex Pressure – Leadership

HomeNewsIncreasing Diaspora Remittances To Ease Forex Pressure – Leadership
Increasing Diaspora Remittances To Ease Forex Pressure – Leadership
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By Bukola Idowu

The Central Bank of Nigeria (CBN) recently amended the amended the Foreign Exchange Manual to allow an inflow of remittances and foreign exchange earnings in the local debt and money market instruments as part of efforts to increase foreign portfolio investments and spur increase in liquidity in the foreign exchange market.

In recent times, the Nigerian foreign exchange has seen increasing demand pressure, particularly the parallel end of the market where the value of the naira has plummeted to N440 to the dollar as at Friday last week. The value of the naira at the interbank market however continues to hover around N315 to N320 to the greenback.

Although the apex bank had moved to narrow the gap between the interbank and parallel markets the difference continues to grow. It had in early August directed banks approved as international money transfers operators (IMTSO) sell foreign currency up to the tune of $30,000, accruing from inward money remittances to licensed BDC operators.

A circular issued by the apex bank had stated that the rate that the banks sell to the BDCs “shall be the buying rate from IMTO plus a margin not exceeding 1.5 per cent” while BDCs sell to foreign exchange end-users at a rate not exceeding two per cent margin above the buying rate.

According to data from Global Knowledge Partnership on Migration and Development, remittances into Nigeria totalled $20.8 billion in 2015 and is expected to rise to N35 billion by the end of this year.

Tapping into this inflow, the CBN had issued a circular which amends the Memorandum 21 of the Foreign Exchange Manual to allow forex inflows of Nigerian individuals as well as companies, resident and non-resident alike to be invested in the local debt, equities and money market instruments.

According to the circular signed by the CBN Acting Director, Trade and Exchange Department, W.D Gotring, the move targeted at encouraging portfolio investments, allows Nigeria nationals and or companies who inflowed foreign currency through authorized dealers, to invest the funds in money market instruments, bonds and equities.

The amended memorandum reads “a resident/non-resident Nigerian national and/or entities and foreign national or entity may invest in Nigeria by way of purchase of money market instruments such as commercial papers, negotiable certificates of deposits, bankers acceptances, Treasury Bills, etc.”

This is the CBN said is subject to provision of evidence of remittance of funds, board resolution of local beneficiary authorizing the investment (in the case of a company) as well as the purpose of the capital importation.

As much as there is a drive to attract foreign investors to invest in the Nigerian market either through direct or portfolio investments, there is also the need to ensure that Nigeria increases its diaspora remittances. Although remittances from diaspora into the country was put at around $21 billion last year, some analysts believe that it may have exceeded that amount as there are funds inflow into the country through unregistered and illegal means.

Dr Ayo Teriba while discussing what needs to be done in the face of macroeconomic challenges in order for Nigeria to regain investor confidence and put the economy back on the path of growth on a panel stressed the importance of increasing diaspora remittances in achieving the desired foreign exchange income.

According to Teriba, Nigeria needs to focus more on encouraging its citizens abroad to invest in the country. He noted that diaspora earnings of the country have over the years seen a slow growth as remittances was around $15 billion about 10 years ago indicating a rise of just about $6 billion in the 10 year period.

Citing India as an example, he said the country had been able to grow its diaspora remittances from $22 billion 10 years ago to $72 billion as at last year. Comparing the two countries, he said the difference have over the years widened from about $7 billion to over $50 billion during the 10 year period.

The amendment of the Memorandum 21 of the Foreign Exchange Manual to allow forex inflows of diaspora funds is critical at this time that the country seeks foreign exchange inflows to meet the rising demand for forex as the external reserves continue to dwindle.

As the former governor of the CBN and Emir of Kano, Muhammed Sanusi II puts it, Nigeria is ripe for investments as “the naira today is undervalued if you take Purchasing Power Parity (PPP) the Lagos stock market you see gross under valuations, the fixed income is offering high yields.”

The Emir while calling for polices that would encourage inflow of funds from outside the country said “If you allow people to come in with their dollars and sell at whatever rate people want to buy. People see they are going to make huge profit on fixed income, on equity market or currency appreciation and you have liquidity in the market.”

The Emir while commending the efforts put in by the monetary policy to achieve this said more needs to be done by the fiscal authorities to encourage inflow of foreign exchange into the country.

Likewise, Executive Director at Sterling Bank, Abubarkar Sulieman stressed the need for government to put in place policies and measures that would see foreign investments, both direct and portfolio, increase.

Last week, FGN bond prices fell across all the maturities amid profit taking as Nigeria’s Eurobond prices mostly fell across all the maturities on sell pressure.

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