Tuesday, March 09, 2021 / 11:55 AM / FBNQuest Research / Header Image Credit: BBC
TheCBN's launch at the weekend of its "Naira 4 dollar scheme" to boost the inflowof workers' remittances has prompted parallels with Bangladesh and Pakistan. InNigeria's case and heavily driven by the COVID-19 virus, remittances in Q3 '20were running 33% below the year-earlier period (GoodMorning Nigeria, 05 Mar '21) whereas they have grown at double-digit levelsy/y in the two South Asian states since June last year.
The CBN has nowgone down the route of offering incentives, although only up to 08 May. TheSouth Asian schemes predate the virus, being launched in 2019. The two states,particularly Pakistan, are popular with EM equity investors and therefore enjoyfx inflows from a source that currently generates little for Nigeria.
The CBN will bearthe cost of a NGN5 bonus for every USD1 remitted by a licensed sender andcollected by the designated beneficiary. In Bangladesh, the central bank pays a2% bonus for all remittances. Transfers below TKD500,000 (USD5,910) do notrequire documents of the beneficiary, and in December, the requirements forlarger transactions were much reduced. For Pakistan, approved sending bodieswaive their remittance fees for transactions above a threshold.
A strong reboundin remittances to Nigeria would be welcome for the boost to householdconsumption and to small-scale construction. It would also ease the pressure onwhat is fast becoming a structural deficit on the current account due to thesteady deterioration in the terms of trade.
The de factocancellation of the Hajj for non-Saudi nationals last year may help to explainthe surge in remittances y/y in June and July in our chart. Unable to embark onthe pilgrimage, our thinking runs, the diaspora in both countries increasedtheir payment orders in lieu.
For bothBangladesh and Pakistan, the largest sources of remittances are Saudi and theUAE. It may be significant that the economies of both countries contracted in2020 at levels much closer to the US than the much higher figures emerging fromthe UK and the Eurozone, which are more important for Nigeria in terms ofremittances.
We do notpretend that the parallels are complete. In particular, the differentialbetween the rates at NAFEX and on the parallel market may be such that the CBNchooses to add to its incentive and extend its validity. That said, the CBN hasbeen well-advised to experiment.
Workers' remittances in USD (% chg; y/y) |
Sources: Bangladesh Bank; State Bank of Pakistan; FBNQuest Capital Research |
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