The Central Bank of Nigeria (CBN) has attributed the woeful performance of the naira in the foreign exchange market to the diversion of diaspora remittances to the black market.

This was stated by the acting governor of the apex bank, Folashodun Shonubi, at the National Institute for Security Studies, Abuja. Delivering the Distinguished Personality lecture titled “Diaspora Remittances and Nigeria’s Economic Development” to participants of the Executive Intelligence Management Course (EIMC) 16, Shonubi said most of the diaspora remittances that came into Nigeria in dollars find their way to the parallel market without being recorded officially.

The acting central bank governor stated this amid the naira’s fall to N930 per dollar at the parallel market on Thursday, which marks its worst performance since the CBN floated the FX market in June.

“With those remittances, the dollars have come in, we know the dollars have come in but we don’t see them in the official system. So, they must be going somewhere and somewhere,” he said.

“And the challenge with the black market, unofficial market or parallel market or whatever name you want to call it, it is as a result that it is not regulated, and it becomes an easy place to have criminal activities.

“We investigate bankers, not just bankers, anybody who has committed an offense, the first thing they want to do is to run to the black markets, change it to the dollars because it is less money to carry around.

“Some of the funding in the black markets are actually from diaspora remittances. That’s why it is important we need to know a lot of what’s going on there. We can’t play the sentiment game. If we don’t understand the dynamics, we usually go with the literature which does not necessarily work for us,” Shonubi said.

He indicated that the amount of inflow coming through many unapproved channels and eventually ending up in the black market contributes significantly to Nigeria’s current FX market situation.

The apex bank chief said that implementing measures within the country to manage illicit remittances and detect these pathways would be beneficial, because it would help direct remittance flows through proper channels, maximizing economic benefits for growth.
He added that Nigeria witnessed a surge in diaspora remittances in 2021, surpassing the inflows from the construction industry.

“We intend to use more of the banking system to send money to Sub-Saharan Africa cost highest because we don’t have masses. It would be helpful if we can work together to identify these channels because we just want the flows into the proper channels, there we can get maximum benefits to grow the economy.

“We talk about black markets, which also create their own problems. Management of the foreign exchange market and the efficacy of our policies to manage the exchange rate becomes difficult due to the insignificance of our diaspora remittances which are going to other markets.

“Today, someone called me privately and said that this thing (naira) has gone up to some levels in the black markets, my question was, what do you want me to do? Do I operate in the black markets? I don’t know the basis of pricing in the black markets.

“The other thing people don’t realize is that, because you don’t have full information, and I will give you an example since we started the I&E window. We found out that some people would deliberately wait until the last minute and do one transaction of $5,000 and that becomes the closing rate.

“We can’t do without diaspora remittances. For many countries, that’s their main source of income,” he said.

However, financial experts appear to disagree with the notion that unofficial remittances to the parallel market are responsible for the free fall of the naira. Nigeria’s forex crisis has been attributed to insufficient dollar liquidity, orchestrated by poor oil and non-oil exports.

Experts say that the existing liquidity gap is too wide to be filled by diaspora remittances alone.

Naira is crashing and the Association of Bureau De Change Operators of Nigeria (ABCON) is blaming Binance. Its president, Alhaji Aminu Gwadebe, wants Binance banned in Nigeria. Right now, the disparity between the official and parallel market rates has widened; the I&E window hovers around N782/$1 while the black market has hit N930/$.

“If you know about Binance, you will know that Binance trading is becoming the anchorage of both the investors and exporters window and the parallel market, which is unfortunate.

So, we have to do something that can stop? Binance. It’s a competition; we need to ban Binance and the only way to do so is if you have liquidity.

As I speak, Binance is the most liquid market; they do 1.2 million transactions per second. So it’s a very liquid market but that is not a scary status, we can break it through our local content and peculiarities.” Alhaji Aminu Gwadebe

This remains my position: “Nigeria will either pause the full floating of its currency or return back to fuel subsidy within 6 months. Nigeria’s weakest currency stability point remains that it has to continue importing petrol since it does not have any working refinery. That creates a vicious circle since those importing fuel will mark up prices, to cushion for the next round of import, working to stay ahead of currency deterioration, in a system with no official benchmark.”

Binance is not Nigeria’s problem. Our challenge is that we do not have parity on the demand and supply of Naira, and using basic economics, Naira will keep losing value since more people are looking for USD than supplying it in Nigeria. 

Floating or swimming Naira does not remove the play of fundamental economics in markets, and until Nigeria can have more USD, Naira will continue to lose value. But I expect the government to put a pedal very soon!

More so, according to the African Development Bank, in its  “Africa Economic Outlook 2023”, “Currency weaknesses in some of Africa’s more globally integrated economies (Kenya, Nigeria, and South Africa) are expected to persist in 2023, largely due to potential capital outflows as investors search for safe assets in advanced economies”.

Yet, with great policies, Nigeria can rise. The young people are very creative and can deliver great results if they are supported. For example, they continue to rake in revenue on Spotify and other ecosystems, demonstrating new potential sources of earning US dollars besides hydrocarbons.

“The number of Nigerian artists who generated more than 5 million NGN and 10 million NGN in royalties from Spotify alone has increased by nearly 25% over the last year. This figure represents revenue generated from Spotify alone and does not consider earnings from other services and recorded revenue streams, concert tickets, or merch.

“In 2022, revenues generated by Nigerian artists from Spotify alone reached over 11,000,000,000 NGN. While Nigerian music industry revenues overall have grown 63% from 2021 to 2022 (according to IFPI), revenues generated by Nigerian artists – from Spotify alone – grew 74% over this same period,” Spotify stated in the report. 

Meanwhile, the apex bank thinks the reason Naira is crashing is due to “the diversion of diaspora remittances to the black market.”

The acting central bank governor stated this amid the naira’s fall to N930 per dollar at the parallel market on Thursday, which marks its worst performance since the CBN floated the FX market in June.

“With those remittances, the dollars have come in, we know the dollars have come in but we don’t see them in the official system. So, they must be going somewhere and somewhere,” he said.

“And the challenge with the black market, unofficial market or parallel market or whatever name you want to call it, it is as a result that it is not regulated, and it becomes an easy place to have criminal activities.

“We investigate bankers, not just bankers, anybody who has committed an offense, the first thing they want to do is to run to the black markets, change it to the dollars because it is less money to carry around.

“Some of the funding in the black markets are actually from diaspora remittances. That’s why it is important we need to know a lot of what’s going on there. We can’t play the sentiment game. If we don’t understand the dynamics, we usually go with the literature which does not necessarily work for us,” Shonubi said.

The Japa syndrome and the high demand for foreign items makes the demand for the dollar more than the naira . Student paying school fees, Importation of raw materials and finished products are also keys factors driven this narrative.

— Keny David (@KennyNuga) August 11, 2023