The die is cast. The official remittance market is in a battle for survival on all fronts. First, its old enemy – the informal channels – does not let itself down. And peer-to-peer (P2P) transfer is gearing up for what could be doomsday.

In a forum on the country’s economic outlook, PwC Nigeria’s chief economist Dr Andrew Nevin said human capital, not oil, is the country’s biggest export. A recent Bloomberg study validated Nevin’s argument, picking Nigeria as the leader of countries with the most notable migrant workers around the world. Nigeria was followed by Pakistan and Canada.

With its advantage of migrant labor and a culture that supports black tax (a term of South African origin that refers to the financial support expected of black working-class individuals by their families), the country’s annual remittances are conservatively valued at $ 34 billion. . But the country rarely comes close to achieving that figure, based on historical data. But this is less of a concern than the steady reduction in the amount received through the official counter over the past few years.

In 2018, the country received $ 24.3 billion. That slipped to $ 23.8 billion the following year and resulted in a significant reduction to $ 17.2 billion last year. Remittances to sub-Saharan African countries improved 2.3 percent last year, but regional performance was hampered by Nigeria’s 28 percent drop, resulting in an overall loss of 12.5 percent for the region.

To reverse the trend and get more value from the country’s dynamic exported workforce, the Central Bank of Nigeria (CBN), in March, unveiled the Naira for Dollar Scheme, an incentive that rewarded recipients of remittances. international money with N5 for every dollar received. The policy, now in its sixth month, has done little to reverse the decline in diaspora remittances.

In the first quarter (Q1) of the year, Nigeria attracted $ 4.2 billion in remittances, down 24% from the $ 5.6 billion received last year during the period corresponding. Pakistan is better off for remittances than Nigeria even though the latter ranks higher in terms of the profile of migrant workers.

Pakistan, whose diaspora remittances reached $ 26 billion last year, has attracted more people to its official transfer channel because of its cost advantage. The country has some of the lowest transfer prices in the world. For example, it costs 2.59% to send $ 200 from UK, 2.9% from United Arab Emirates (UAE) and 3.9% from Singapore in the last quarter (Q4) of last year. , against an average cost of 8.2% one hundred sub-Saharan migrants paid to transfer money home.

The high cost has prompted the popularity of unsafe informal channels in the remittance ecosystem of Nigeria and other African countries. Today, the allure of digital money extends the challenge even further. As digital currencies become more widespread, more and more users are exploring P2P for remittances.

Data from Chainanalysis, which tracks blockchain activity and asset movements, indicates that Africa received $ 105.6 billion in bitcoin and other crypto between July 2020 and June 2021. This showed that ‘much of the amount is made up of transfer payments, which have increased significantly since April 2020.

These call into question the effectiveness and competitiveness of the strategies created to increase the official discount window, which is necessary to increase the country’s external reserves and stabilize the naira – a currency currently in the intensive care unit (ICU). Market participants and economists have raised questions about the appropriateness of the supply management framework and options for realigning strategies with the realities of emerging markets.

“If Nigeria can effectively manage remittances, it will add 0.4% to our GDP growth every year. Its very important. But you know where our problem is, these remittances, unlike Pakistan and other countries that receive remittances, a lot of dollars don’t go into the forex market in Nigeria. They stay out there, and that’s the model. Someone wants to send money to their family here in Nigeria. This person has $ 10,000 in the US and wants to give the Naira equivalent to a family member here in Nigeria; Normally the way it works in other countries is that $ 10,000 will enter the forex market in Nigeria and become a supply boost here.

“But the reality is that in Nigeria’s situation, the dollar is not going where it is. The person providing the naira equivalent here prefers to keep the dollar equivalent outside, so that it does not enter the forex market in Nigeria. Thus, we do not fully benefit from diaspora remittances here in Nigeria, despite the fact that we are the best in terms of benefiting migrant workers, ”noted Dr Biodun Adedipe, management consultant at B. Adedipe Associates. Limited, in a recent interview. .

Over the years, international money transfer operators (IMTOs), the majority of which are foreign organizations, have viewed money transfer activity as their exclusive right, an attitude that has fueled several anti-market practices during the years. years. The governor of the CBN, at the start of the current transfer policy which allows recipients to be paid in foreign currency, admitted that IMTOs and their agents were more interested in taking arbitrage on different foreign exchange markets than deepen the market.

Perhaps it is time to take the remittance sector reform further. And Adedipe said the Bureau De Change (BDC) operators, whose role in the forex market is currently undefined, may be awarded a share of the $ 34 billion remittances market as the country is looking for new policies to make the market competitive. Association of Bureau de Change of Nigeria (ABCON) president Dr Aminu Gwadabe said this position aligns with global practice.

He said the BDCs remain at the center of economic development and have the capacity to attract the capital necessary for the development of the Nigerian economy and the deepening of the foreign exchange market. He argued that diaspora remittances remained a cheap source of funding for economic growth and development because there was no interest in them.

“In addition, BDCs are supposed to buy from travelers coming to Nigeria, whether they are foreigners or Nigerians who have done work abroad and have been able to earn money and come back with foreign currency. BDCs are also expected to operate at a two-way rate, and then in response to what they have told you, you will now indicate whether you want to buy or sell to them. Operators must also be in tune with the dynamics of the market; be able to set their rates within the recommended commission limits competitively in this market. Other issues include customer service, relationship management and commissions, which need to be within the market range, ”Gwadabe observed.

He insisted that the BDCs, having supported economic growth and exchange rate stability over the years, wish to be given a role for better access to foreign exchange. He said the success of BDCs was not limited to favorable rates, but access to multiple foreign exchange income streams to deepen the market, maintain the stability of the naira and stimulate the economy.

“Nigerian BDC operators have identified with the immense opportunities presented by diaspora remittances and want to play a greater role in attracting more foreign capital into the economy. Indeed, remittances are known to help the poorest beneficiaries meet basic needs, finance investments in cash and not in cash, finance education, foster new businesses, repay debt. and, essentially, to stimulate economic growth, ”argued Gwadabe.

On how the integration of the BDC would be strengthened, the boss of ABCON went on the path of remembrance: “BDCs buy currencies from the recipients of remittances and sell them to Nigerians who wish to travel abroad. . The reason for the creation of these institutions in 1989 was to expand the foreign exchange market and improve accessibility to hard currencies. The CBN oversees and issues operational guidelines for BDCs. As of March 2006, Nigeria had 293 licensed BDCs, which today have more than 5,500 operators. This development means that BDCs are willing and ready to handle remittances, ”Gwadabe said.

The World Bank and the International Monetary Fund (IMF) have launched a campaign to tackle the high cost of remittances to sub-Saharan Africa on the grounds that funds are essential for the survival of poor households and for reducing poverty .

IMF Managing Director Kristalina Georgieva at a digital currency forum said adopting stablecoins was crucial to lowering the cost of remittances to developing countries and preventing a “digital divide” .