By Ibrahim Moshood, Associate, Centurion Law Group
The “Naira 4 Dollar” Policy
With a considerable amount of its population in the diaspora[1], Nigeria is one of the top three African destinations receiving the largest inflow of foreign remittances at over USD 24 Billion in the last quarter of 2020.[2] In an effort to sustain and encourage the inflow of these remittances, the Central Bank of Nigeria has introduced the “Naira 4 Dollar Scheme” on 5 March 2021. This scheme is scheduled to take effect from 8 March 2021 to 8 May 2021.
Foreign remittances are quite important to the Nigerian economy, contributing over 83% to the National budgets between 2018 and 2019. [3] Recall that in November 2020, the CBN had issued a circular to authorized dealers and the public stating principally that, beneficiaries of foreign currencies will only have the option of receiving sent funds in foreign currencies through Deposit Money Banks DMBs (DMBs) and approved International Money Transfer Operators (IMTOs).[4] Note that to prevent round-tripping, the maximum amount that can be sent through an IMTO is USD 100,000.00.[5]
The Naira 4 Dollar scheme is an incentive for senders and beneficiaries of international money transfers, and pays N 5 for every USD 1 received as remittance inflow. The benefit only avails persons that transact through the approved mediums which are commercial DMBs and approved IMTOs, as the incentive will be paid through these means. This incentive is paid regardless of where the beneficiary elects to be paid i.e. over the counter or via transfer into their domiciliary accounts.
Is this scheme enough to bolster the Nigerian currency?
As noted above, this scheme is to sustain foreign inflow of remittances and also strengthen foreign exchange. However, it is quite important to consider if there could be the risk of further devaluation against the Naira where more Naira notes are printed to support this incentive. With a creeping GDP rate of 1.5% within the first quarter of 2021, expected to rise to 3.3% with sufficient diversification[6], perhaps more drastic actions will have to be taken to sustain the rate of the Naira.
The length of the scheme hardly makes it attractive enough for financial institutions to launch investment opportunities for Nigerians in the diaspora. If anything, this seems like a quick-fix for the interim and not a long-term solution. There is the need for a new foreign exchange policy to address this and provide more attractive schemes to spike the flow of foreign remittances.
You can reach out to us at Centurion Law Group, for further questions on how to take benefit of this incentive.
[1] The UN Migration Portal estimates 1.3 Million as at Mid-2020.
[2] https://www.cbn.gov.ng/Out/2020/CCD/Governor’s%20Remarks%20Diaspora%20Remittances.pdf
[3] https://knoema.com/atlas/Nigeria/topics/Economy/Balance-of-Payments-Current-accounts/Personal-remittances-received-percent-of-GDP
[4] CBN Circulars-Ref. No. TED/FEM/FPC/GEN/01/011, TED/FEM/FPC/GEN/01/012 & PSM/DIR/CON/CWO/16/119
[5] A Round Trip is the actual buying and selling of a specified amount of the same asset. In the context of the forex market, it pertains to a specific currency.
[6]https://www.afdb.org/en/countries-west-africa-nigeria/nigeria-economic-outlook#:~:text=Real%20GDP%20growth%20is%20projected,2020%20and%203.3%25%20in%202021.