COURSE TITLE: FINANCIAL MANAGEMENT

COURSE CODE: BUS 320

DEPARTMENT: INDUSTRIAL RELATIONS AND

PERSONNEL MANAGEMENT

NAME: ODUNLAMI TAIWO MARY

MATRIC NUMBER: 17/66RP091

Assignment

“Naira for Dollar” scheme was introduced by Central Bank of Nigeria (CBN) as foreign
exchange incentive which is to run from 28th of march to 28th of May 2021. As a financial
management student access the scheme and its effect on: Foreign exchange, value of Naira,
International trade.
The Central Bank of Nigeria has introduced a Naira for Dollar remittance incentive scheme. This
involves recipients of remittances inbound to Nigeria through licensed money transfer companies
to earn a "bonus" or rebate of five Naira for every American dollar received. It's also notable that
the bonus only applies to remittances that are paid into a bank account in Nigeria. "In an effort to
reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the
CBN has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs
licensed by the CBN. The Scheme will take effect on the 8th of March 2021. We believe this
new measure will help to make the process of sending remittance through formal bank channels
cheaper and more convenient for Nigerians in the diaspora," reads a statement by CBN
announcing the remittance incentive. Since the onset of the COVID-19 pandemic and its related
lockdowns, there has been a steep decrease of remittances inbound to Nigeria during 2020
compared to 2019. The drop in remittances has also translated in a drop in household
consumption in Nigeria.

It is thus hoped that the new incentive, which kicked off on 8 March 2021 and will run until 8
May 2021, will hopefully boost remittances and in-country spending. "New FX policy will create
an easier, more flexible, and more transparent, system of remittance administration, it will
greatly enhance the benefits of diaspora remittances in supporting investments and growth in
Nigeria. Policy on the administration of remittance flows is aimed at increasing the transparency
of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora
with cheaper and more convenient ways of sending remittances to Nigeria." The new incentive
scheme is not the first regulation announced by CBN aimed at boosting remittances into Nigeria.
In November 2020 CBN sent a circular to money transfer companies in Nigeria that inbound
remittances into Nigeria can only be made in US dollars and are to be paid to a bank account in
Nigeria or collected in foreign currency as cash.

Apart from trying to boost inbound remittances, the CBN at the time also explained that the new
regulations were aimed at stabilizing and deepening the foreign exchange market, providing
more liquidity, and creating transparency, especially in the administration of diaspora
remittances into Nigeria. PwC has released a report which estimated that remittances to
Nigeria could grow by up to $ 34.8 billion in 2023. The consulting company stated that factors
that will drive remittance flows include growth in emigration rate, economic conditions of the
resident countries, and the economic fundamentals in the Nigerian economy. It, however,
remains to be seen the effect of these new regulations and incentives in Nigeria on the rebound
and growth of inbound remittances as well as areas such as Foreign exchange, Value of Naira
and international trade.

The policy will solve the forex supply issues faced by a rather notorious FX consuming
economy. Absolutely, a bird in hand is worth more than two in the bush, and I am a fan of going
after low hanging fruits before reaching for the ones requiring more efforts. However, the
Nigerian forex problem stems from something way bigger than remittances from abroad, which
is Nigeria’s Balance of Trade (BOT) and Balance of Payment (BOP). Encouraging remittance is
good, may ease the pressure on the limited forex resources of the CBN but largely because 70%
of those remittances are for domestic consumption; it will not even scratch the surface of the
BOP problems.

The policy will encourage an over-supply of forex to the economy thereby weakening the black
market and stabilizing the Naira, there can never be an oversupply of forex in a nation that
consumes more forex than it earns. Indeed, our aunties and uncles in the village probably
consume as much forex as the city people do, after all kerosene for cooking is imported. The
country long lost productivity and the ability to earn the much-needed forex only resides in oil
and gas. Assuming that all the remittances coming into Nigeria makes it through the official
system into the banks with CBN having full visibility. However, the new policy has given
Nigerians the option of collecting the dollars (in fact, the IMTO’s are mandated to pay dollars to
recipients through the banks). The question is that how exactly is the dollar remittance going to
improve our BOP deficit?
This policy would only further strengthen the black market by making legitimate dollars’ flow to
it. Given the fact that we still have massive BOP issues, banks struggling to meet their
obligations on already negotiated International trade instruments like Letters of Credit, Bills for
Collection etc., and importers are tired of losing money by paying high interest on these trades
because they are unable to convert their sales proceeds to dollars, will once again look to the
almighty black market, which is already heavily funded by illicit dollars and now even legitimate
dollars for rescue. It is indeed no news that many unavoidable imports are tagged “unqualified”
for CBN dollars leading those importers to source forex from the black market. It is also no news
that the CBN has not been able to meet the demand for the “qualified” transaction and this action
to further supply the black market with legitimate dollars only makes it worse. It is not feasible
how this action stabilizes the naira or weakens the black market.

The policy will clamp down on arbitrage seeking IMTOs who do not declare the real remittance
figures in the hope of benefitting from round-tripping etc. This is laudable, however frivolous. It
has long been evidenced in Nigeria that the real “round-trippers” are not enjoying that from
external dollars, but more from internal dollars through some of the policies of the CBN like
having multiple exchange rate policies etc.

The policy intends to make it cheaper for Nigerians abroad to send money home, removing any
bottlenecks in exchanges by making it possible that “what you send is what you receive” and the
“Naira 4 Dollar” could replace your transfer fee. A Nation that ranks 152 out of 157 on the
Human Capital Index and where 40% or more live below the poverty line (Reuters) needs all the
bonanzas it can get. However, this policy will not, in any way make money transfer cheaper
and/or easier for Nigerians in Diaspora; neither will it encourage remittances through the formal
channels. In fact, I believe that more remittances happen via non-formal routes than the formal
routes in any case.
Foreign Direct Investments (FDIs) would play a major role in encouraging productivity in the
country, but it is evident that those FDIs are not coming for now. One begins to wonder why. It
was reported that FDIs have decreased by over 48% since 2019. Foreigners with the money no
longer trust the economy, human rights are at its low, insecurity is the order of the day, economic
and monetary policies are erratic, the education and health sector is as good as dead, the
government’s body language towards corruption is not clear, Banks are afraid of the CBN so
much instead of a regulatory think-tank relationship, it’s almost an abusive command and obey
situation. Remittances from abroad would not scratch the surface of our BOP requirement,
Infact, Nigerians in Diaspora are not sending money home to invest, they are sending money
home, so their relatives won’t die of hunger in a nation where poverty is in a romantic
relationship with many of its citizens.

Nigeria’s Balance of Payment challenges cannot be resolved without looking at the fundamentals
that got us here and addressing them.Tthis is a pilot project, but the CBN should completely
forget about the idea of “Naira Giveaway”. If the country had that much money for incentives, it
could as well channel it towards productive ventures that may eventually contribute to alleviating
the bigger problems. The CBN can as well give the money towards agriculture, create an
irredeemable convertible loan structure for start-ups (we have thousands of them, capable of
becoming unicorns in search of funding) etc. these ventures may eventually be the messiahs of
our non-oil economy. The CBN needs to adopt workshop style approach where it engages
various stakeholders, banks, forums, private citizens with wealth of knowledge before coming up
with landmark policies. It needs to actually start regulating and not dictating. If the CBN wants
to regulate arbitrage seeking IMTOs, that is fine and recommended. However, it should also seek
innovative ways of keeping the forex inflow within the banking system. We cannot make the
dollars our official currency. Citizens should only be able to collect Naira in Nigeria albeit at
competitive exchange rate reflective of the economic realities. That way, the banks can make use
of the dollars to settle trade exposures and further relieve the CBN of weekly forex rationing.