Q3 2020: The Negative COVID Impact on Remittances


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

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We learn from the CBN's most recent Quarterly Statistical Bulletin that net current transfers in the balance of payments (BoP) slumped by -27.1% y/y to USD4.35bn in Q3 '20 yet rose by 11.6% q/q. For net workers' remittances, which account for close to 90% of net transfers, the changes were -33.0% y/y and 14.8% q/q. In the early days of the Covid-19 virus, the World Bank foresaw a fall in remittances to EM and frontier states of about 20% annually. The outturn has clearly been worse than the Bank anticipated in Nigeria. In Kenya, however, the figure for January-October 2020 was about 9% ahead of the year-earlier period. In Pakistan and, most of all, Bangladesh where the central bank pays out a small bonus on conversion into local currency, remittances have shown robust growth.


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


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


According to the local media, the CBN governor told a virtual conference on 26 February that its regulatory changes, notably the new option for beneficiaries to take their incoming payments from licensed international money transfer operators in fx, have given a boost to remittances. The changes were announced in early December. 


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


This y/y decline in transfers, taken in conjunction with the resilience of merchandise imports, more than compensates for the much-reduced outflow on services. This helps to explain why Nigeria's current account has not returned to surplus, which would have 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. The IMF's World Economic Outlook from January has growth in the UK, the US and Canada at 4.5%, 5.1% and 3.6% respectively this year.


Current transfers and portfolio investment (net; USD bn)

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Sources: CBN; FBNQuest Capital Research

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