Viral Pressure Expected on Remittances


Tuesday, April 21, 2020 / 09:25 AM / By FBNQuest Research / Header Image Credit: National Daily


From the latest balance of payments (BoP) from the CBN we see that net current transfers increased by 10.7% y/y to US$7.0bn in Q4 2019, and by 16.9% q/q. Net workers' remittances generally account for more than 90% of net transfers. They peak in the fourth quarter to coincide with the Christmas holiday season, an exception being Q1 2019 due to a sizeable inflow from a development agency.  We see from our chart that transfers exceeded portfolio investment each quarter except one over the past four years. They are, however, now vulnerable to the pandemic.

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In aggregate, remittances to lower and middle income countries have exceeded official aid by a factor of three since the 1990s. In Nigeria in 2019 they totaled US$23.5bn net, compared with US$9.0bn in foreign portfolio investment (FPI) and a derisory US$1.8bn in foreign direct investment.


World Bank statistics have remittances to sub-Saharan Africa rising by 10.1% in 2018 and 5.1% in 2019. Its forecast of further increases from US$49bn to US$51bn this year, and US$54bn in 2021 now look very hopeful.

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In the latest BoP there have been substantial revisions to data for FPI in 2018 and 2019. We now have a record net inflow of US$14.4bn in Q1 2019, when there was a brief surge into debt securities after the presidential election. We also have net outflows in Q3 and Q4, which are consistent with the start of the exit from OMO bills and other short-term paper.


Current transfers and portfolio investment (net; US$ bn)


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Sources: CBN; FBNQuest Capital Research


Nigeria is the sixth largest recipient of remittances globally and the second in Africa (after Egypt). The recession now widely forecast for this year suggests a painful squeeze on remitting households. The five countries that are the largest sources of remittances to Nigeria (US, UK, Germany, Italy and Canada) are all forecast to contract by at least -5% this year according to the IMF's new World Economic Outlook.

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