The costs of Nigeria's growing remittances market

Oct 21, 2019|Temitayo Lawal

If Nigeria received a $10 deposit for each dollar remitted to the country, perhaps we would have enough money to plug our power generation gap.

The most populous African country needs about $216 billion to generate 180,000 megawatts of electricity, which is close to our estimated power demand. It would take Nigerians abroad a decade to do this if their annual remittances were pooled to light up the country.

Remittances accounted for over half of all private capital flows to Africa in 2016, and are increasingly hailed as a boon for the continent. But remittances are a product of migration, which leads to a net overall loss to countries like Nigeria.

According to the AfDB, “Africa loses in excess of 70,000 skilled professionals annually to emigration, resulting in a huge human capacity deficit in the continent.” This outflow is particularly significant once we consider that countries like Nigeria do not have a wide base of skilled workers, so are unable to absorb skilled emigration the way China or India would.

Healthy, educated and highly skilled Nigerians are also more likely to emigrate.  And because the skilled population isn’t large enough, emigration at our current rate can leave behind a gap. This means a decline in the skilled labour stock in the country.

In other words, the more doctors who migrate to Canada, the wider the doctor-population ratio in Nigeria. And although we can expect a Nigerian doctor in Canada to be more productive than a Nigerian doctor in Nigeria, there is an obvious cost of losing our biggest and brightest to greener pastures.


Hush money

Even if money Nigerians send home has surpassed what the country earns from oil in the past four years, there is little cause for celebration. Such comparisons divert attention from the opportunity cost of the remittances and, consequently, make us mistake the tree for the forest.

Although they are beneficial to recipients, research shows that remittances do not come without a cost, particularly a negative impact on the quality of health, labour, productivity, governance and accountability in the home country.

Remittances, due to people likely being dependent on it, may also have offsetting effects on good governance and accountability. A constant flow of remittances to households may encourage them to ignore the government's non-provision of necessities they can now independently afford. A household that can use remittances to buy and fuel a generator is less likely to be worried about power supply. Likewise, a family that uses remittances to pay for private school education is less bothered about the state of public schools. Moreover, remittances are different from other private wealth sources as they are not tied to the country’s state of affairs. In that way, remittances reduce Nigerians’ skin in the game and make them less likely to push for change.

Despite a push to leverage diaspora bonds and other forms of direct diaspora investments, funds from the diaspora are harder to leverage for savings and investment, which are critical for economic growth.

The current reality is that a millionaire in Nigeria is more likely to invest in a Nigerian business or asset that can generate wealth for the country than a Nigerian diaspora. Arguably, the best hope for Nigeria’s development still lies with those that remain in the country.


The more the merrier?

Finally, we ought to be wary when celebrating higher remittances. A lot of the increase may have more to do with improved measurement as countries adopt new systems and technologies to capture informal flows.

Meanwhile, rising remittances can also be an indication that things are getting worse in the country. When we celebrate an increase in remittances, we should assess whether this is because more skilled workers are fleeing the country, and if so, higher remittances are a bad economic signal.

Nigeria received $25 billion in remittances in 2018 yet it is 24th in Africa on the Human Development Index and, last year was declared the poverty capital of the world. These trends are not entirely unrelated. 

According to Pew Research, unemployment, insecurity and lack of future opportunities drive migration in sub-Saharan Africa. The number of international migrants from countries in sub-Saharan Africa is projected to increase due to the continent’s growing population and no corresponding growth in economic development.

Nigeria is a microcosm of the region. As Nigeria’s projected growth for 2019 falls below the global average of 2.9 percent, the country will fail if it doesn’t rejig its strategy to tackle these fundamental issues.

Diaspora remittances, no matter how high or well-organised, may be significant financial inflow into the country, but they cannot substitute for government’s incompetence in effectively and sustainably growing the economy.

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