Remittances: A Smoothening Agent

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Thursday, May 17, 2018 09:40 AM / Proshare Research 


The recent 2018 migration and development brief of the World Bank stated that remittances to low-income countries experienced a rebound as remittances to the low-income countries (LIC) rose by  8.5% to reach $456 billion. The renewed momentum was on the back of firmer growth in Europe and America. 

Renewed improvement in labour conditions abroad fused with the rekindling in income growth was responsible for the rebound witnessed in remittances to LIC. 

Holistically, global remittances rose from $573 billion in 2016 to $613 billion in 2017.  

The report however forecasted a 4.1% growth in remittances in 2018 and 4.6%   growth for global remittances in the same year.

Fig 1: Global Remittances

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Source: World Bank  


Remittance inflow into India and China in 2017 stood at $68.96 billion and $63.86 billion respectively in 2017. Both countries attracted $132.82 billion in remittances in 2017, implying 7% accretion in remittances compared to 2016 and represented 21.6% of total global remittances.  

Remittances to Sub-Saharan Africa in 2017 alone, stood at $38 billion, making it 8.3% of total remittances to LIC and 6.2% of global remittances. Even though remittance to Sub-Saharan Africa blistered, regardless the region still maintains a lean share of remittances.  

Largely due to the fact it remains one of the most expensive places to send money coupled with the region’s quality of human capital regarded as expatriates outside its shore has made under cut its potential remittance inflow.

The causality effect from thin expenditure on education is reverberating negatively not only on adjusted net savings (ANS) on the region but even on remittances.   Though it is not surprising to see remittances to the region is far less than that  of  India, who tend to have a higher pool of skill labour     



Remittance inflow into Nigeria grew by 11.7% from $19.636 billion to $21.967 billion in 2017. 

Currently, remittance inflows into Nigeria make up 57.8% of total remittance to the Sub-Saharan African region.  

Presently, remittance to Nigeria makes up  4.2% and 3.5% of remittances to LIC and global remittances.     

Fig 2: Remittances Inflow to Nigeria from 1977 t0 2017

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Source: World Bank


The trend so far suggests that the crystalizing moment for remittances in Nigeria can be traced to the structural adjustment period of 1992. Outward migration due to harsh economic conditions sowed the seed tor bolstering remittance inflow into the country over the years. 

The present scenario put Nigeria as the sixth (6th) largest recipient of remittance inflow in 2018. 

Regardless, Nigeria is not immune from regional pull backs, the quality of its human capital; it undercut potential remittances when compared to its diaspora population.


Fig 3:  Remittances Among Major Countries

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Source: World Bank


Nigeria’s Remittances to GDP

Nigeria’s remittances to GDP currently stand at 5.4% to GDP, towering above many other countries.  Presently, the inflow of remittances matched against the size of GDP, provides a leveraging factor to the Nigerian economy compared to the likes of China and India.  

Even though the likes of China and India enjoy the largest chunk of remittances, but such inflows are limited compared to the huge productive base. 

Inflows from remittances into those countries have a limited effect compared to their individual huge balance of payment (BOP) and size of monetary supply. 

Therefore, remittance inflow tends to have wider impact on monetary supply and BOP in countries likes Philippines and Egypt.       


Fig 4:  Remittances to GDP 

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Source: Proshare Research


Even though inflow from remittances are not been completely immune from cyclical shocks, as slack labour condition, political uncertainty and relatively tighter migration laws affect remittances. 

However, remittances are immune from interest rate differentials and are considered to be a more stable source of inflows to frontline economies like Nigeria and Egypt. 

In Nigeria, remittances remain a substantial portion of both money supply and autonomous inflow into the nation: Thus, inflows from remittances stand at 0.27 and 0.47 to money supply and autonomous inflow respectively. 

Apart from shoring up the supply end of the green back in the economy, due to the nature of the inflow. Remittance serves as a measure of smoothening inequality in places like Mexico and Philippines.  In certain countries remittances have also helped to improve the financial sector, especially in war torn Somalia. 

In developing economies especially in places like Nigeria recipient household plough such inflow into the trio of existing consumption, education and real estate/properties. 

The real estate sector benefits from remittances that are ploughed towards capital flows. Thereby it’s not surprising to see property price in urban areas like Lagos, Ibadan, Port Harcourt and Benin surge due to the remittance, eventually propping income level in an asymmetric manner.      


Fig 5:  Remittance to M2 and Remittance to Autonomous inflow in Nigeria   

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 Source: CBN, World Bank


The manner at which such remittances are managed by the household plays a determining factor in lifting them through the economic pyramid.       

More importantly, India recognized they have a large pool of diaspora that have tapped into remittance inflow in an attempt to bridge finances and how?  

By issuing diaspora bonds at attractive rate, India is shifting remittances as an inflow tool from just income transfer but increasing capital inflows and widening the room for investment. One of such bond is the resurgence bond, which was a success. 

Moreover, with earlier cyclical pressure easing off coupled with a more stable current account. Such medium could be tapped into once again as government pivot more towards foreign credit lines to bridge budget shortfalls. 

Especially for a country, whereby federally collected revenue has eroded deeply, therefore the initial gulf between federally collected revenue and remittances have vanished. 

Nigeria finds itself in similar position like those of Morocco, Egypt and Philippines, whereby it can lean on remittances to shore up both its budget and balance of payment (BOP).    


Fig 6: Federally Collected Revenue and Remittance Inflow from 2004 t0 2017 

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Source: CBN


The presence of more stable Naira, improved oil earnings, declining inflation and bolstering labour conditions abroad provide macro support to the instrument.  

 Thereby it provides Nigeria an ample opportunity to beef up the nation’s capital account, moreover the ability to employ such remittances into infrastructure tend to have a lasting effect on the economy 

As they tilt towards improving supply side economics compared to transfer of income which is consumption driven. 

Obviously, for a nation like Nigeria characterised by lean revenue to GDP ratio and relatively sizable remittances, remittances should be one of the kit in the tool boxes ploughed towards achieving a favourable gross elasticity of poverty.    


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