Resilience of Workers' Remittances

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Wednesday, July 22, 2020 / 09:52 AM / by FBNQuest Research / Header Image Credit:  FBNQuest

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From the CBN's latest Quarterly Statistical Bulletin we see that net current transfers in the balance of payments (BoP) declined by 19.5% y/y to US$6.2bn in Q1 2020, and by 12.0% q/q. For net workers' remittances, the falls were 5.5% y/y and 5.1% q/q. They account for over 85% of net transfers and peak in the fourth quarter to coincide with the Christmas season, an exception being Q1 2019 due to a inflow of US$1.7bn from a development agency. At the outset of the pandemic, the World Bank estimated a 20% fall in remittances for low and middle-income countries.


The jury is still out in the case of Nigeria although there have been some encouraging signs from other jurisdictions. In Kenya remittances fell off in February and March but returned in May to January's healthy level.


Both Bangladesh and Pakistan reported record remittances in June, with a 49% y/y rise in the latter case. One common thread, which offers some read-across for Nigeria, is that the cancellation by Saudi of the principal Hajj freed up additional funds for remitting.


Nigeria is the sixth largest recipient of remittances globally and the second in Africa (after Egypt). 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 -7% this year according to the IMF's update last month to its World Economic Outlook.


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


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Sources: CBN; FBNQuest Capital Research


In 2019 net remittances of US$23.5bn were far more important in BoP terms than net foreign portfolio investment of US$9.1bn or net foreign direct investment of US$1.8bn. The cost of remitting has fallen because of competition from e-transfers. Nigeria could still consider incentives. Bangladesh pays an additional 2% on conversion to local currency to discourage the use of informal channels. The data point to some success.


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