Q3 2020: The Negative COVID Impact on Remittances

Friday, March 05, 2021 / 09:18 AM / By FBNQuest Research /Header Image Credit: Pensa Libre

We learn fromthe CBN's most recent Quarterly Statistical Bulletin that net current transfersin the balance of payments (BoP) slumped by -27.1% y/y to USD4.35bn in Q3 '20yet rose by 11.6% q/q. For net workers' remittances, which account for close to90% of net transfers, the changes were -33.0% y/y and 14.8% q/q. In the earlydays of the Covid-19 virus, the World Bank foresaw a fall in remittances to EMand frontier states of about 20% annually. The outturn has clearly been worsethan the Bank anticipated in Nigeria. In Kenya, however, the figure forJanuary-October 2020 was about 9% ahead of the year-earlier period. In Pakistanand, most of all, Bangladesh where the central bank pays out a small bonus onconversion into local currency, remittances have shown robust growth.

The q/qimprovement is probably due to the fact that the low point in the Covid cyclefor those G7 economies where the Nigerian diaspora is concentrated was theprevious (second) quarter of 2020.

Theories as toNigeria's relative underperformance abound. It could be that the Nigeriandiaspora has a particularly large presence in those economies that have takenthe largest hits from the virus (the Eurozone and the UK). The exchange-rateregime (ie the sense that the recipient was not getting 'full value' in naira)may have been another factor.

According to thelocal media, the CBN governor told a virtual conference on 26 February that itsregulatory changes, notably the new option for beneficiaries to take theirincoming payments from licensed international money transfer operators in fx,have given a boost to remittances. The changes were announced in earlyDecember.

Net transferswere again substantially higher than net inflows of foreign portfolioinvestment (USD1.67bn), let alone those of foreign direct investment (USD470m).

This y/y declinein transfers, taken in conjunction with the resilience of merchandise imports,more than compensates for the much-reduced outflow on services. This helps toexplain why Nigeria's current account has not returned to surplus, which wouldhave been the first since Q2 '18 (Good Morning Nigeria, 18 February 2021).

Looking ahead,we would expect a recovery in remittances as the G7 economies rebound. TheIMF's World Economic Outlook from January has growth in the UK, the US andCanada at 4.5%, 5.1% and 3.6% respectively this year.

Current transfers and portfolio investment (net; USD bn)

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