••Diversifying Inflow Channels
The Central Bank of Nigeria (CBN) is actively pursuing various strategies to significantly increase the inflow of foreign exchange (FX), aiming to improve access for manufacturers and retail consumers and ultimately bolster the nation’s economy.
The apex bank, under the leadership of Governor Olayemi Cardoso, has implemented a series of measures designed to streamline dollar inflows. These initiatives include developing new products to enhance diaspora remittances, licensing new International Money Transfer Operators (IMTOs), adopting a willing buyer-willing seller FX model, and ensuring timely access to naira liquidity for IMTOs. These efforts are geared towards simplifying channels for FX dealers, thereby fostering business activity and economic expansion.
Attracting foreign capital remains a critical component in achieving both monetary and fiscal policy stability in Nigeria. This underscores the focus and effort being invested by the CBN to ensure a consistent flow of foreign exchange into the economy and its accessibility to businesses.
Diaspora remittances, estimated at a substantial $23 billion annually, represent a significant and reliable source of FX for the Nigerian economy. The CBN is also exploring other avenues and policies to further encourage dollar inflows.
The CBN’s ongoing initiatives have already contributed to the sustained growth of these inflows, aligning with the institution’s stated goal of doubling formal remittance receipts within a year. Increased remittances are expected to be a direct result of the CBN’s efforts to build public confidence in the foreign exchange market, strengthen the banking system, and promote price stability – all of which are crucial for long-term economic growth.
Charlie Bird, Director of Trading at Verto, noted a more balanced dollar liquidity dynamic, stating that foreign investors and airlines are now better able to repatriate funds. Speaking at a Cordros Asset Management seminar, he highlighted that Nigeria is becoming an attractive destination for foreign investors due to improved dollar liquidity resulting from the CBN’s positive reforms.
A key example of the CBN’s efforts is the recent introduction of two new financial products specifically designed to cater to Nigerians living abroad and attract greater diaspora remittances. These measures are complemented by the licensing of new IMTOs, the implementation of the willing buyer-willing seller model, and the facilitation of timely naira liquidity for IMTOs.
Revised IMTO Guidelines Examined
The CBN recently released updated guidelines for International Money Transfer Services in Nigeria, signaling a significant shift in the operational framework for IMTOs. These revisions reflect the CBN’s commitment to enhancing transparency and efficiency in foreign exchange transactions and boosting diaspora remittances.
A subsequent circular, titled “New Measures to Enhance Local Currency Liquidity for Settlement of Diaspora Remittances,” further emphasizes the CBN’s dedication to improving Nigeria’s foreign exchange market infrastructure by increasing remittance flows through formal channels. This includes measures to provide licensed IMTOs with access to Naira liquidity from the CBN, thereby streamlining the disbursement of remittances to beneficiaries.
Analysts at Duale, Ovia & Alex-Adedipe, a specialized law firm, analyzed the circular, explaining that the guidelines now permit IMTOs to disburse foreign remittances through agents designated as Authorised Dealer Banks (ADBs). The guidelines mandate formal contracts between IMTOs and ADBs, outlining the terms of engagement, and require IMTOs to notify the CBN of each ADB appointment. Additionally, IMTOs are required to receive foreign remittances in a designated account held with ADBs, separate from other accounts. The guidelines also stipulate that ADBs and IMTOs must disburse remittance proceeds to beneficiaries in Naira, either through bank accounts with the ADB or in cash (up to a $200 limit). Notably, IMTOs are now prohibited from purchasing foreign exchange from the domestic market to settle customer funds.
The key significance of the circular lies in the measures to improve IMTOs’ access to Naira liquidity, facilitating the timely settlement of diaspora remittances. Eligible IMTOs can now directly access the CBN window or utilize their ADBs to execute foreign exchange sales in the Nigerian market. This allows IMTOs to purchase Naira directly from the CBN or through their ADBs for remittance settlements, a change from previous guidelines.
To ensure effective implementation and promote transparency, the CBN has set a noon deadline for transaction confirmations to qualify for same-day settlement. Foreign exchange conversions will be based on the prevailing Nigerian Autonomous Foreign Exchange Market (NAFEM) rates. Furthermore, IMTOs and ADBs are required to submit daily regulatory reports detailing fund sources, and eligible IMTOs must confirm their ADBs and provide standard settlement instructions.
Analysts believe these measures represent a significant step forward in ensuring foreign exchange liquidity in Nigeria. By granting IMTOs direct access to Naira and implementing strict regulatory requirements, the CBN aims to enhance the efficiency and operations of IMTOs, streamline remittance flows, and ensure secure fund movement through official channels.
Focus on Diaspora Remittances
The CBN’s introduction of two new financial products, the Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account, underscores its commitment to boosting diaspora remittances and stabilizing the Naira. These accounts are designed to streamline remittances, encourage investments, and promote financial inclusion among Nigerians living abroad.
The Non-Resident Nigerian Ordinary Account facilitates remittances by allowing non-resident Nigerians to remit foreign earnings and manage funds in either foreign currency or Naira. It supports deposits from sources like salaries and dividends for purposes such as family maintenance and healthcare. The Non-Resident Nigerian Investment Account offers an avenue for non-resident Nigerians to invest in Nigeria’s financial markets, including foreign currency-denominated bonds and local assets. Both accounts provide currency flexibility, allowing holders to convert funds between foreign currency and Naira at prevailing exchange rates.
The CBN anticipates that these accounts will unlock the economic potential of Nigerians in the diaspora by increasing remittances and fostering investments in critical sectors.
Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria, emphasized that diaspora remittances are a crucial source of foreign exchange for Nigeria, supplementing foreign direct and portfolio investments. He noted that the CBN’s initiatives have supported the continued growth of these inflows, aligning with the objective of doubling formal remittance receipts within a year. Gwadabe expects remittances to increase further due to the CBN’s ongoing efforts to build confidence in the FX market, strengthen the banking system, and promote price stability.
Mohamed Touhami el Ouazzani, Regional Vice President of Africa at Western Union, highlighted the significant impact of remittances, stating that in 2023, $90 billion flowed into Africa from its diaspora. He emphasized that remittances drive economic change by fueling infrastructure development, spurring entrepreneurship, and promoting financial inclusion. He pointed to countries like Ghana, Kenya, Ethiopia, and Nigeria that are leveraging remittances and diaspora bonds for national development projects.
El Ouazzani stressed the importance of understanding and meeting people’s aspirations by offering diverse channels for remittance access, including bank accounts, digital wallets, mobile money apps, and cash pickups. He concluded that remittances are a powerful tool for building resilient economies and reshaping the global narrative of success.
Data from the International Monetary Fund (IMF) also indicates a rise in non-traditional reserve currencies, suggesting a diversification in global financial reserves.
Stakeholders agree that the measures implemented by the CBN under Governor Cardoso have not only stabilized the forex market but have also laid a foundation for sustainable economic growth in Nigeria.
