Diaspora remittances hit $1.5bn in 6 months amid foreign exchange crisis

In the first half of 2024, Nigerians living abroad sent over $1.5 billion to their relatives and businesses back home, providing a significant boost to the country’s foreign exchange reserves. A record $553 million was remitted in July alone, according to an analysis conducted by The Whistler, marking a promising recovery in diaspora remittances, which have become increasingly critical to Nigeria’s economic stability.

The inflow of funds from the Nigerian diaspora has long been recognised as a key lifeline for the country’s foreign exchange supply, particularly as foreign direct investment (FDI) and portfolio investment (FPI) have been inconsistent due to macroeconomic challenges. In the face of Nigeria’s ongoing foreign exchange crisis, the Central Bank of Nigeria (CBN) has set a target to attract $1 billion monthly from remittances, aiming to reduce reliance on other external financing sources.

Fluctuations and Recovery in 2024 Diaspora Remittances

The year began with moderate remittance inflows of $138.56 million in January, a 75% increase year-on-year from $79.19 million in the same period in 2023. However, by February, inflows had dropped significantly to $39.14 million, marking a steep 53% decrease compared to February 2023.

March saw a modest recovery, with $104.90 million remitted, although still lower than the $138.63 million recorded in the corresponding period of 2023. By the end of the first quarter of 2024, Nigeria had received a total of $282.61 million in diaspora remittances, down by 62% year-on-year.

However, the trend reversed in the second quarter, with remittances increasing to $193.31 million in April, aided by new CBN measures to attract more foreign exchange through formal channels. In May, the country received $365.44 million, signalling a strong upward trajectory. This culminated in the record-breaking $553 million remitted in July, marking a major milestone in Nigeria’s efforts to meet its $1 billion monthly remittance target.

CBN Initiatives Fuel Remittance Growth

The growth in diaspora remittances can be largely attributed to reforms and initiatives introduced by the CBN. The bank has granted Approval-in-Principle (AIP) to 14 new International Money Transfer Operators (IMTOs) to facilitate the smooth flow of funds through formal channels. According to Mrs Hakama Sidi Ali, the CBN’s Acting Director of Corporate Communications, the bank has been working closely with stakeholders to address challenges in the remittance process and improve liquidity in local currencies for quicker settlement of funds.

In June 2024, the CBN implemented a policy allowing IMTOs to access naira liquidity more easily and participate in the official forex market. This measure was aimed at encouraging Nigerians abroad to send funds home through official channels, reducing the attractiveness of unofficial, parallel markets. The CBN also introduced a willing buyer-willing seller model, which narrowed the exchange rate gap between the parallel and official markets.

A Changing Economic Landscape

Professor Olu Ajakaye, Executive Chairman of the African Centre for Shared Development Capacity Building, told The Whistler that government policies are likely behind the uptick in remittances. He emphasised that it would be beneficial if the inflows were being directed toward developmental projects and investments, as this would further stimulate economic growth.

“If remittances are going into investment activities, then it shows the country is becoming more attractive to both foreign and diaspora investors,” Ajakaye said. However, he noted that most Nigerians abroad, compared to countries like India—which received $107 billion in remittances in 2023—face financial difficulties, often working low-wage jobs, which limits their ability to send larger sums back home.

Outlook and Challenges

Despite the July surge, Nigeria’s total remittances over the last five years have fluctuated, peaking at $23.81 billion in 2019 before dropping to $17.21 billion in 2020. While remittances recovered slightly in 2021 and 2022, they remained relatively stagnant at around $19.5 billion by the end of 2023. The CBN’s reforms have been pivotal in reversing the downward trend in 2024, but economists warn that further policy improvements are needed to sustain growth.

“The over $500 million remitted in July 2024 is encouraging, but we must continue enhancing policies to ensure long-term growth,” Ajakaye added.

As Nigeria navigates a challenging foreign exchange environment, the role of the diaspora in stabilising the economy is expected to grow even more critical in the coming years. By aligning remittance inflows with productive investments, Nigeria could see a dual benefit: economic support from abroad and growth in domestic industries that spur job creation and sustainable development.