February 13, 2020 09:53 AM / FBNQuest Research/ Header
Image Credit: Fulcrum Financial
We note from the latest balance of payments (BoP) data that net current transfers increased by 0.5% y/y to US$6.0bn in Q3 2019, and by 2.6% q/q. Net workers' remittances generally account for more than 90% of net transfers, the exception being Q1 2019 (see below). They peak in the fourth quarter to coincide with the Christmas holiday season. We see from our chart that transfers exceeded portfolio investment each quarter over the past four years. They are the steadier source of fx inflows, and trending upwards.
The CBN is heading a continent-wide initiative to gather data on remittances. It would be useful for policymakers and certain industries to have an accurate idea of the end-use of inflows on this scale. The information is only available anecdotally at present.
Nigeria's BoP is deteriorating, we have often observed, because exports are stable whereas imports are rising due to the demand driven by annual population growth of +/- 3%. Without the fx inflows from transfers, the current account/GDP ratio would be about five percentage points worse. In these circumstances, a FGN strategy for the diaspora (including possible incentives for remittances) is surely warranted. Individual state governments could develop their own planning.
According to some analysts, the US restrictions on the issue of immigration visas to Nigerians (and nationals of five other countries) that take effect from later this month will have a negative impact on remittances. This may be likely although Nigerians can apply for comparable visas elsewhere.
Current transfers and portfolio investment (net; US$ bn)
Sources: CBN; FBNQuest Capital Research
The record net inflow of US$7.6bn in Q1 2019 was achieved thanks to a net other transfer of US$1.6bn. We understand that the source was a development agency and the beneficiary was non-profit institutions serving households.