Counting Gains of CBN’s ‘Naira-4-Dollar Scheme’

Finance

Fifteen months after it rolled out its policy of the ‘Naira-4-Dollar Scheme’, the CBN has begun to count the gains of the policy described as an incentive that pays naira to senders and recipients of international money transfers. Festus Akanbi, who reviews the policy, says what is needed are the complimentary efforts of the fiscal authorities to enable the apex bank’s sundry policies to boost forex earnings and management to yield the desired dividends

Not ready to be overwhelmed by the persistent dollar scarcity, the Central Bank of Nigeria (CBN) has continued to explore ways to quench the thirst for foreign exchange by government, businesses and individuals as the last quarter of the year 2022 beckons.

The reality is, as the year progresses, the demand for forex, especially the United States dollar is mounting, a development which analysts said has left the monetary authorities with no other choice but to ration the available foreign currencies.

Already the federal government is proposing to spend N3.36 trillion for petrol subsidy in 2023 based on the 18-month extension announced in early 2022. Recall that last week, the minister disclosed that the government was spending N18.39 billion daily on petrol.

Market watchers said despite the instability in the foreign exchange market, it will be unfair to under-report several initiatives put in place by the current leadership of the CBN in meeting the rising dollar needs of businesses and government given the fact that most of the triggers of the rush for dollars are beyond the apex bank.

One such initiative was the “Naira-4-Dollar scheme”, which was launched on March 8, 2021, and which was initially scheduled to end in May 2021. However, after its initial successes, the CBN said the scheme is to continue indefinitely. 

It is an incentive that pays naira to senders and recipients of international money transfers.

The policy is aimed at boosting the dollar supply in the country at a time of foreign exchange crunch that has forced the central bank to devalue the naira more than once a year.

According to the bank, recipients of diaspora remittances through CBN’s International Money Transfer Operators (IMTOs) will now be paid N5 for every $1 received as a remittance inflow.

What this means is that if you received a $1,000 diaspora transfer, CBN would simply credit your account with an additional N5,000 (N5 * 1,000). 

The success of the scheme was confirmed in May this year by the CBN after it has run for exactly one year as it disclosed that diaspora remittances surged 1,667% from $6 million to $100 million weekly.

Excitement Over Rise in Diaspora Remittances in 1Q

The CBN’s self-assessment was corroborated by the position of the Chairman and Chief Executive of the Nigerians in Diaspora Commission (NiDCOM), Mrs. Abike Dabiri-Erewa, who acknowledged the rise in Diaspora remittances, especially in the first quarter of this year.

She thanked Diaspora Nigerians for what she noted was the rise of remittances in the first quarter of the year, by 20.3 per cent, representing the seventh consecutive quarterly increase in diaspora remittances since the last quarter in 2020.

NiDCOM’s spokesperson, Abdur-Rahman Balogun, in a statement last week quoted Dabiri-Erewa as having said that the increase in remittances by Nigerians abroad played a significant role in boosting Nigeria’s Gross Domestic Product (GDP), which has an impact on its socio-economic growth.

“As the world recovers from the global pandemic and confronts instability of many kinds, we want to honour the efforts of all those who continue to support their loved ones despite the challenging circumstances,” Dabiri-Erewa said.

NiDCOM observed that the recent figures released by the country’s financial services industry regulator, the Central Bank of Nigeria (CBN) showed an increase in remittances in quarter one of 2022 to $5.16 billion from $ 4.29 billion same period in 2021.

Big Haul

Satisfied with the performance of the scheme, especially in the first eight months of 2022, the CBN announced last week that the “Naira 4 Dollar Scheme” attracted $2.4 billion in diaspora remittances between January and August this year, surpassing the figure reported last year.

According to the Director, Trade and Exchange department of the central bank, Ozoemena Nnaji, the total amount gathered between January to August was above the $2.9 billion recorded between March to December 2021.

 “We have seen an increase in the Naira-4-Dollar in terms of remittances. For example, in 2021, we were able to record $2.9 billion of cash inflows, so far this year, we have recorded $2.4 billion. So, in half of the year, we have gotten almost what we got in the year 2021,” she stated.

She explained, “We have a component of remittances which include workers’ compensation, anyone that worked in Nigeria, even if you are a Nigerian but are paid in dollars because you work for an embassy or an international organisation, it is counted as a remittance.

“So, there are so many components of remittances. But the component of inflows that came into this country so far, we are at $2.4 billion.”

Nnaji said the central bank is working with Pakistan to learn more about how the scheme can help Nigeria. The CBN is also partnering with the Deposit Money Banks (DMBs), the Ministry of Finance, as well as foreign affairs, to improve its remittance policies.

Replicating Success in Naira-4-Dollar on IEFX Window

With the modest success recorded with the Naira-4-Dollar Scheme, the CBN decided to move the scheme from the IMTOs to the IEFX window in February 2022. The CBN issued guidelines stating that for every US dollar repatriated and sold at the Investors and Exporters Window, it will enable a payment of N65.

In other words, similar to the Naira-4-Dollar Scheme, eligible participants who bring in dollars will receive a N65 incentive payment for every $1 brought via the IEFX window. For example, if an eligible participant brings $100,000 via the IEFX window, that participant gets N6.5 million.

Explaining the interconnectedness of the various dollar-generating policies, the CBN Governor, Godwin Emefiele, who spoke at the end of a recent Bankers Committee meeting, stated that the success of the CBN’s Naira-4-Dollar plan has prompted the central bank to implement the RT200 rebate scheme.

He said “As regards the FOREX markets for example, on the inadequacy of FX supply and constant pressure on the exchange rate, I believe that the lessons we have learnt from our policies on remittances can be applied in improving some aspects of FX inflow into the country. As we know, there are four major sources of FX inflow into Nigeria. These are Proceeds from oil exports; Proceeds from non-oil exports; Diaspora remittances, and Foreign Direct/Portfolio Investments.”

Unquenchable Appetite for Forex

Apart from the controversial policy of subsidy, which gulps a substantial chunk of the nation’s foreign exchange earnings, a combination of unfavourable government policies is forcing many Nigerians to seek opportunities elsewhere with corresponding pressure on Nigeria’s foreign exchange market.

Analysts said the forex market has been recording an unrelenting pressure from parents who seek better education for their children abroad as a result of the seven-month-old industrial action by members of the Academic Staff Union of Universities (ASUU) which has paralysed the nation’s university education. The development is said to have raised demands for Business Travel Allowance (BTA) in banks.

Unfortunately, the situation is so bad that many banks have decided to ration this among their customers.

Findings showed that thousands of applicants go through this harrowing experience as they get their Personal Travel Allowance (PTA) in two or three tranches depending on what is available in the banks’ vaults. Some get $1,000, $2,000, or more and are asked to access the balance in their dollar debt cards, which are usually not enough for their spending needs abroad because of banks’ spending limits.

According to the CBN’s rules, Sales of PTA shall be for travel to be undertaken not more than 14 days from the day of the purchase of PTA. Applicants could be account holders or non-account holders in the bank. PTA shall only apply to journeys of not less than five hours of flight time.

Some applicants for PTA have, however, found ‘smarter’ ways of getting their dollar supply by having multiple applications in different banks thus challenging the effectiveness of commercial bank measures at rationing.

Experts argued that although the apex bank is making a frantic effort to stabilise the nation’s foreign exchange market, Nigeria would only begin to see the results when the fiscal authorities can muster enough confidence to block all the loopholes. For instance, they argued that the time had come to stop the policy of fuel subsidy to conserve foreign exchange which is badly needed by the productive sector of the economy.

They also called for discipline, which can only manifest in the way government affairs are being conducted, arguing that the fiscal authorities cannot expect normalcy in the foreign exchange market when members of government still engage in ventures that amount to waste of resources.