Diaspora Remittances and Cardoso’s New Tricks, by Rahma Olamide Oladosu
Diaspora remittances have long been a crucial pillar of Nigeria’s economy, providing vital foreign exchange (forex) liquidity and contributing to financial stability. These inflows from Nigerians living abroad serve as a buffer against external shocks, support household incomes, and help stabilise the Naira. Over the years, diaspora remittances have consistently outpaced Foreign Direct Investments (FDIs) and Official Development Assistance (ODA), making them a key driver of economic growth.
Under the leadership Governor Olayemi Cardoso, the Central Bank of Nigeria (CBN) has taken significant steps to enhance the role of diaspora remittances in strengthening the country’s forex reserves. Recognising the importance of these inflows, the CBN has implemented several policies aimed at increasing remittance volumes, ensuring they are routed through formal channels to maximise their impact on the economy. These efforts have already begun to yield positive results, with remittances through International Money Transfer Operators (IMTOs) reaching $4.22 billion between January and October 2024—an impressive 61% increase compared to the same period in 2023.
Nigeria remains one of the largest recipients of remittances in Africa, with annual inflows exceeding $20 billion. The World Bank estimates that these remittances contribute approximately 4% of the country’s Gross Domestic Product (GDP). These funds go into investments in real estate, hospitality, pharmaceuticals, education etc. They also provide financial relief to millions of Nigerian families, enabling better access to education, healthcare, and housing. Beyond their direct impact on households, remittances also support the nation’s forex reserves, helping the CBN maintain liquidity in the forex market. Given that crude oil exports still account for over 80% of forex earnings, the volatility of global oil prices makes diaspora remittances an essential stabilising factor.
One of the major challenges historically faced by the CBN has been the high volume of remittances that flow through informal channels such as peer-to-peer transfers, cryptocurrency platforms, and unregulated forex operators. These unrecorded inflows limit the country’s ability to fully benefit from remittances. To address this, the CBN has reinforced regulatory oversight on IMTOs, ensuring they provide competitive exchange rates and efficient fund processing. By tightening regulations on forex transactions, the CBN has been able to encourage more Nigerians abroad to use formal remittance channels.
A key initiative under Cardoso’s leadership has been the proposal for a Nigerian diaspora bond, which is expected to be launched in the United States in 2025. The aim is to attract remittance inflows of $1 billion monthly by offering investment opportunities tailored to the Nigerian diaspora. With remittances already rising to $600 million per month as of September 2024—up from $250 million earlier in the year—this initiative seeks to further enhance forex liquidity. The increasing attractiveness of Nigerian assets, driven by the CBN’s exchange rate reforms, has played a critical role in boosting remittance inflows. Cardoso has emphasised that policy consistency and investor-friendly reforms are crucial to maintaining this positive trend.
One of the CBN’s most impactful policies in recent years was the “Naira 4 Dollar Scheme,” introduced in December 2020, which rewarded recipients with an additional N5 for every $1 received through official channels. While this initiative initially increased remittance inflows, it was not a long-term solution to forex liquidity challenges. Under Cardoso’s leadership, the focus has shifted toward structural reforms that enhance the overall attractiveness of the Nigerian economy to the diaspora. By allowing recipients to withdraw their remittances in US dollars rather than being forced to convert them at official rates, the CBN has reduced pressure on the parallel market and increased forex supply in the formal banking system.
The impact of these reforms extends beyond remittance inflows to broader economic stability. Consistent forex inflows provide the CBN with greater flexibility to intervene in the forex market, reducing exchange rate volatility. This contributes to a more stable Naira, minimises inflationary pressures, and strengthens investor confidence. Additionally, remittances play a key role in offsetting trade deficits, as Nigeria remains an import-dependent economy. By increasing household incomes, they also boost consumer spending, support real estate investments, and drive small business growth, further stimulating economic expansion.
Despite these positive developments, challenges remain in fully harnessing diaspora remittances. The cost of sending money to Nigeria remains relatively high compared to global averages. Transaction fees charged by IMTOs and banks discourage senders from using formal channels, driving a portion of remittances to informal networks. Addressing this challenge requires continued collaboration between the CBN, commercial banks, and fintech companies to lower remittance costs and enhance digital financial services. Expanding mobile money platforms, introducing blockchain-based remittance solutions, and streamlining transaction processes can make official channels more appealing to Nigerians abroad.
Forex scarcity and the premium on parallel market exchange rates further complicate the situation. Due to persistent forex shortages, many remittance recipients still opt to exchange their funds through the black market, where rates are often more favourable. CBN’s reforms aim to close this gap by increasing forex supply through official channels, thereby narrowing the disparity between the official and parallel market rates. However, maintaining a stable and market-driven exchange rate remains critical in ensuring that remittances continue to flow through regulated financial institutions.
CBN’s efforts under Cardoso’s leadership also extend to strengthening partnerships with host countries of large Nigerian diaspora communities. By negotiating bilateral agreements that facilitate lower-cost remittance transfers, Nigeria can further enhance the ease of sending money home. These agreements, combined with targeted financial incentives, could encourage more Nigerians abroad to invest in their home country. The proposed diaspora bond is a prime example of how remittances can be leveraged not only as household income but also as a tool for national development.
Providing tax incentives for diaspora investments is another strategy that could significantly boost remittance inflows. Many countries offer tax breaks and other financial benefits to attract investment from their expatriate populations. If Nigeria adopts similar measures, it could drive greater forex inflows into key sectors such as agriculture, real estate, and technology. Additionally, strengthening collaborations with multinational financial institutions could further reduce remittance costs and increase efficiency in fund transfers.
Financial literacy campaigns targeted at both senders and recipients of remittances can also play a role in increasing the use of formal channels. Many Nigerians, especially in rural areas, are unaware of digital remittance services, mobile banking options, and investment opportunities available through official financial institutions. Expanding financial education initiatives will help more people understand the benefits of using regulated channels, reducing dependence on informal networks.
Technology is set to play an even greater role in Nigeria’s remittance ecosystem. The rise of fintech companies has already transformed the way money is sent and received. By investing in blockchain-based remittance solutions, artificial intelligence-driven fraud detection, and digital wallets, Nigeria can enhance transaction security, reduce processing times, and eliminate inefficiencies in the system. These innovations will also help combat financial crimes such as money laundering, making the formal remittance system more attractive and secure.
Diaspora remittances remain a vital source of forex for Nigeria, contributing to economic stability, national development, and household welfare. Under Governor Cardoso’s leadership, the CBN has taken proactive steps to increase remittance inflows, improve forex liquidity, and attract diaspora investments. While challenges such as high transaction costs and parallel market discrepancies persist, ongoing reforms aim to address these issues through digital innovations, policy consistency, and enhanced financial inclusion.
By implementing long-term strategies that leverage the full potential of remittance inflows, Nigeria can ensure a steady supply of forex, support national economic growth, and create more opportunities for both local and diaspora investors. As the global remittance landscape evolves, Cardoso’s policies position Nigeria to adapt, grow, and fully capitalise on the contributions of its vast and dynamic diaspora.
Oladosu is a Senior Staff Writer with the Economic Confidential
