Spotlight: Nigeria (The Monito Briefing Issue #6)

Hello! This week, we're kicking off the first edition of our 'Spotlight' series by focusing on Nigeria and its place in cross-border payments — past, present, and future.

An intriguing story in the world of remittances, two unrelated but essential events define Nigerian inflows in 2021: the impact of the COVID-19 pandemic and the central bank's efforts to bolster the faltering Nigerian naira.

Industry Highlights

First things first, here’s what’s been happening over the past two weeks:

• Weighing in on the role of cross-border payments as a lifeline to families around the world in the wake of Covid-19, Mastercard Executive Vice President Stephen Grainger expressed the urgency of making them available to all;
• Singapore and Thailand have linked their real-time payment networks PayNow and PromptPay, allowing instant consumer transfers across borders — a first in the field;
• Continuing the rise of digital contender banks, Starling Bank became the second most switched-to bank in the UK in the final quarter of 2020, bypassing many traditional banks.

Were World Bank Woes Realised In Nigeria?

As 2020 remittance data from central banks around the globe becomes increasingly available, a clearer picture begins to emerge of exactly how hard global cross-border remittances were (or in some cases, were not) hit by the COVID-19 pandemic.

As we explored in February, many regions — including Latin America, Bangladesh, and Pakistan — experienced a surprising rebound in remittance growth toward the tail-end of 2020, defying World Bank expectations of a 20% decline globally with many countries recording double-digit percent positive year-on-year growth in inflows.

In Nigeria, however, the situation at face value appears to be quite the opposite.

According to figures recorded as 'Total Direct Remittances' by the Central Bank of Nigeria (CBN), the volume of inward remittances fell precipitously by 71.22% in 2020 compared to 2019 — far worse than the World Bank's estimate.

The figures stand in stark contrast to strong growth figures since 2015 (during which time total inflows to Nigeria nearly tripled, according to the CBN) as well as the 8% year-over-year increase forecast by PwC in 2019.

However, it remains unclear the extent to which the pandemic was responsible for the collapse recorded versus reporting irregularities, with CBN Governer Godwin Emefiele asserting in a March keynote address that remittance inflows "are grossly characterized and marred by irregularities" as IMTOs "unlawfully choose to under-report [their] inflows."

It's also worth pointing out that the decline in remittances to Nigeria reflects transfers made via official channels only. Total remittance inflows to sub-Saharan Africa including unofficial channels are thought to be significantly higher, according to The Brookings Institution, aggravated further by the fact that currency controls (such as those being imposed in Nigeria, which we'll explore later) drive a parallel market for foreign currency and further strengthen informal, unrecorded remittance channels.

Who Gets the Green Light From the CBN?

Before we delve into the CBN's currency controls and explore their potential impact on the future of cross-border payments to Nigeria, let's take a step back and look at who's allowed to send money to Nigeria in the first place.

In February of this year, the CBN published a list of 47 approved international money transfer operators authorized to send US dollars to Nigeria and added another ten in April. Here are some of the big names who found themselves on the list:

Other groups to have found their way onto the central bank's green list include:

• TransferTo Mobile Financial Services Ltd, which operates UK-based interoperable payment network Thunes;
• Simplify Ltd, which runs the B2C remittance payment solution Simplify Synergy;
• Nigerian transaction switching and processing firm Xpress Payment Solutions.

What To Watch

The November 2020 move by Nigeria’s Central Bank of Nigeria to only allow US dollar remittances into the country threw its remittance market into chaos. Nearly six months after the fact, what consequences has that decision had on the currency itself and the Nigerian remittance market?

• Though the added hurdle doesn’t seem to have had much effect on the total amount of remittances into Nigeria, Monito’s own data tells us that after a spike of interest in early December, users’ comparisons for transfers to Nigeria in NGN declined sharply, while interest for transfers in USD picked up – though not enough by far to bring the total up to pre-December 2020 level. Though this data reflects first and foremost the decisions made by Monito users and not market dynamics at large, it does speak to a rising awareness that transfers in NGN are no longer possible.

• In the immediate aftermath of the CBN’s move, the Lagos black market rate for USD-NGN exchanges did fall sharply from a 500 NGN high, reaching a low point of 465 NGN per USD at the end of December 2020 – still well above the CBN’s official 380 NGN rate. The black market rate then slowly rallied to 485 by March 2021.
• In March, the CBN introduced a “Naira 4 Dollar” scheme, which nets remittance recipients a 5 NGN bonus for every USD received through authorized IMTOs, whether in cash or on a bank account. This might seem like a puzzling choice: since there is no restriction on cash payouts, nothing prevents recipients from getting the 5 NGN bonus when they cash out their US dollars before exchanging them on the black market. However, the scheme has coincided with a largely stable black market rate, which has remained at 485 NGN since its introduction in early March – which could be a consequence of a greater influx of USD. Though there were sceptical voices at first, the CBN’s decision to extend the scheme indefinitely signals that it is seeing positive effects.

The future of Nigeria’s remittance market is unclear, especially since the CBN has not released the relevant data past March 2021. The extension of the incentive scheme and the approval of new IMTOs make it likely that, as the recovery from Covid-19 continues, remittances will start to rise again. The CBN will however likely maintain its tight grip on the naira and thus set the rules of the game for the foreseeable future.

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