On the 5th day of March 2021, the Central Bank of Nigeria, in a statement that was signed by Jibrin, A.S, announced that it was going to begin a cashback incentive on money sent in US Dollars to recipients in Nigeria, aiming to encourage the remittance of the dollar into the country and support exchange rate stability. The initiative aimed to boost dollar to naira transactions and was to last from the 8th day of March to the 8th day of May 2021.
What is the dollar to naira initiative?
This initiative termed “Naira for dollar.” The Central bank of Nigeria stated that “The CBN shall through commercial banks, pay remittance recipients an incentive of N5 for every $1 remitted by the sender and collected by the designated beneficiary. This incentive is to be paid to recipients whether they choose to collect the United States dollar as cash across the counter in a bank or transfer the sum into their domiciliary account. In effect, a typical recipient of diaspora remittances will at the point of collection, receive not only the USD sent from abroad but also the additional N5 per USD received.”
What this meant is that if for example, someone receives 1500 dollars from someone abroad, the Central bank of Nigeria would pay an extra 7500 naira (5 Naira x 1500). The central bank wants to encourage those in the diaspora to pump more money back into the economy. The CBN Governor, Emefiele Godwin, believes the policy will attract foreign investors and boost the economy.
A striking thing the head of Nigeria’s apex bank said about the policy was how easy it would make remittance to be. In his words, “Even a one percent reduction in remittance cost can boost the economy significantly.”
The dollar to naira incentive is supported by all banks in the federal republic of Nigeria. It is important to note that recipients will receive the US dollar funds sent in US dollars. The only funds received by the recipients in Naira is the cashback incentive.
Fidelity bank organized a webinar because of this and called on the CBN governor to shed more light on the policy and its advantages. The CBN governor, Mr. Godwin Emefiele, the Vice President Prof. Yemi Osinbajo, the CEO of Fidelity Bank, Onyeali-Ikpe Nneka, and other stakeholders were present, and each delegate underscored how beneficial the policy is.
Ms. Sadiku Yewande who represented the Vice President revealed that Nigerians in the diaspora do a lot for the country. She further stated that for years, the amount of revenue gotten from Nigerians in the diaspora superseded the amount of money gotten from the selling of crude oil. Hence the country’s government was looking for a way to use this great potential for the good of the economy. Ms. Yewande further broke it down, stating that 70 percent of the money from abroad is used for family support, while we use mainly 30 to develop real estate.
Since the release of the statement by the CBN, a lot of opinions have been dropped by experts in economic and financial matters. Some of these comments have been positive and filled with commendation while others were critical of the policy and its usefulness to the economy.
The head of Lagos Chamber of Commerce and industry Muda Yusuf lauded the Central bank for this move. He opined it would enhance the inflow of Forex. It will also reduce the stress of liquidity on the foreign exchange market. He hoped that the policy would not only inject money into the country but also affect the current Dollar to Naira exchange rate for good.
But really, is this the best policy the Central bank can come up with? The fact remains that whether the CBN adds incentives on dollar remittance into the country or not, Nigerians in the diaspora will still send money to their families in Nigeria.
The admittance made by Ms. Yewande is not one that should be made with pride. If Nigerians outside the country contribute more money to our revenue than the sale of oil, what then are we doing? Does this mean Nigerians in the diaspora take care of citizens better than the government? Since Nigerians in the diaspora would send money home regardless of the presence of incentives, the five nairas should be channeled towards doing something better for the economy.
A well-respected financial site calculated the amount the nation would lose to this policy and placed it at 17.5 billion naira in just two months. From world bank’s report on remittance in sub-Saharan Africa, it showed that Nigerians abroad sent in 22 billon dollars in 2017 alone. If we are to go by this statistics, the country would literally give away 18.3 billion naira in just two months, an amount that could be used to set up, to an extent the never-ending refinery project.
Dollar to Naira outlook
Assuming this policy actually works and would encourage more remittance, the duration is too short to even make any reasonable impact. The policy would last for two months and then what? The economy goes back to where it was before.
The challenges in Nigeria are much larger than what remittances from abroad can solve. Encouraging remittance of foreign reserves is like treating the symptoms of a diseases instead of weeding out the disease-causing organism. And sadly, for Nigeria, no matter the huge remittance, no matter the dollar to naira exchange, the canker worm is still eating deep and feeding fat.
Looking at the statement made by Ms. Yewande, 70 percent of what money received from aboard is literally consumed and only 30 percent is invested. Nigeria is a consuming economy; we consume more than we earn. We import more than we export so no matter the amount of foreign exchange that flows into the country, it would still flow out, in search of things that we cannot produce ourselves.
The country literally imports oil, even though we are blessed with its natural resource, crude oil. We also import basic consumables, and these daily consumables are what we spend 70 percent of our remittances on. How then does this policy solve anything?
Financial analysts have said that the policy is a weak attempt to correct anomalies due to inconsistent financial policies. Cowry Asset Management opined that the scheme sent a bad signal, and this caused a further devaluation of the naira.
Further buttressing the point that this policy is not really the best of policies to help the economy, days after the policy commenced, the Naira depreciated by 1.04% and 0.42% in the parallel market and Bureau du change, respectively.
Nigeria is in a financial quagmire and will continue to sink further is policies put to help the economy do little or nothing at the end of the day.