What are remittances? Well, remittances are usually understood as financial or in-kind transfers made by migrants to friends and relatives back in communities of origin. “When migrants send home part of their earnings in the form of either cash or goods to support their families, these transfers are known as workers’ or migrant remittances.” – IMF 2018.
Remittances have played an increasingly large role in the economies of small and developing countries. Since the late 1990s, remittances have exceeded development aid, and in some cases are equivalent to a significant portion of a country's gross domestic product (GDP). Not only are remittances large but they are also more evenly distributed among developing countries than capital flows, including foreign direct investment, most of which goes to a few big emerging markets. In fact, remittances are especially important for low-income countries like Nigeria, as it represents one of the largest sources of income for our people. Remittance flows to low-income countries are nearly 6% of their gross domestic product (GDP), compared with about 2% of GDP for middle-income countries.
Remittances to Nigeria
Over the weekend, it was announced that Nigeria received US$25billion in 2018 from Diaspora remittances compared with US$18billion revenue generated from gross crude oil and gas sales. This figure only serves to prove a fact we have all known for a while – More and more people are leaving Nigeria to other countries in search of greener pastures.
However, the decision by many Nigerians to emigrate in recent years did not come easy. Often, many opted to leave out of frustrations by the dearth of basic social infrastructure, economic hardship and insecurity that has bedeviled the nation for many years.
Remittances to Nigeria represent 6.1% of GDP, and translated to 83% of the Federal Government budget in 2018. Nigeria’s migrant remittance inflows were also seven times larger than the net official development assistance (foreign aid) received in 2017 of US$3.4 billion. Therefore, Nigeria’s biggest export is not oil; it is actually people, because of the remittances coming in.
More stable than capital flows
Remittance flows tend to be more stable than capital flows, and they also tend to be countercyclical—increasing during economic downturns or after a natural disaster in the migrants’ home countries, when private capital flows tend to decrease. In countries affected by political conflict, they often provide an economic lifeline to the poor. The World Bank estimated that in Haiti they represented about 12% of GDP in 2011, while in some areas of Somalia, they accounted for more than 70% of GDP in 2006.
Remittance Growth in Nigeria
With Every Dark Cloud…
Although Africa is considered to be the largest unserved market that has dropped out of sight of the global financial system, there are segments in its financial services industry that are highly advanced in terms of the adoption scale and attractiveness to entrants. For instance, remittance via mobile has picked up a rapid pace in Africa, with Kenyans already using mobile money services for over eight years.
“The fast growing young population (115 million people below the age of 35), exponential growth of mobile phone lines (estimated at 150 million as at July 2016), huge financial inclusion potential (less than 50 million people with bank accounts in a population of 200 million people, based on Bank Verification Number (BVN) data and relatively strong talent pool (buoyed by Nigerians in diaspora) are pertinent indicators of the FinTech opportunity,” as noted by Boye Ademola, Partner, KPMG US.
Furthermore, maybe it’s not an entirely bad situation since emigration leads to significant foreign exchange proceeds into the country in return. In poorer households, remittances may finance the purchase of basic consumption goods, housing, and children's education and health care. In richer households, they may provide capital for small businesses and entrepreneurial activities. They also help pay for imports and external debt service, and in some countries, banks have been able to raise overseas financing using future remittances as collateral.