How Brexit Has Affected $3.7billion Annual Diaspora Remittances To Nigeria.

Britain’s decision to leave the EU is rippling through the global economy via an important but hidden channel: the money that migrant workers in the UK send home to Nigeria and other home countries.

The World Bank estimates migrant workers sent back about $24.9bn last year, making Britain the fourth-largest source of remittances in the world and Nigeria leads in the league of recipient countries with an estimated four billion pounds annually.

The sharp fall in the value of sterling since the Brexit vote (down 14.6 per cent and 13.2 per cent against the dollar and euro respectively) means those remittances are worthless to the people back home who receive them.

The money Nigerian professional workers in the UK send home from mainly London each month not only supports their immediate and extended families here, it is also building them family houses in different locations in Nigeria.

But since Britain’s vote to leave the EU this summer, the pounds he sends home are worth a lot less than they used to be.
The Nigerians in the UK and their families here in Nigeria are expectedly worried about the impact of Brexit and even on a national level, the government would be worried as well given that diaspora remittances are expected to overtake oil sale as the largest single contributor to FX flows into Nigeria this year.

Globally, remittance flows are three to four times larger than official development assistance, which makes them “really important for people in poor and middle-income countries,” said Vijaya Ramachandran, a senior fellow at the Center for Global Development, a US-based think-tank.

“Maybe migrants [in the UK] will work harder to make up some of that shortfall, but [given] the fall in the value of the pound, it is going to be hard to make up for all of that.”

The issue extends far beyond Europe. Nigeria, India and Pakistan are the top three recipients of remittances from the UK, excluding high-income countries who have wealthy and globally mobile workforces.

In South Asia, a region that has strong historic ties to the UK — its former colonial power — millions of people depend heavily on remittances from overseas workers to stay afloat. India, which received £3.6bn in remittances from the UK last year, is the world’s largest recipient of overseas money sent home by migrant workers, accounting for approximately 3.4 percent of Indian GDP.

Though the amount of funds flowing from the UK to Bangladesh, Pakistan and Nepal is far lower than the total sent to India, these more fragile economies depend far more heavily on total remittances, which account for about 8.5 per cent, 7 per cent and 29 per cent of each country’s GDP respectively.

The only European economies to make the top 10 recipients of UK remittances are Poland and Hungary. Nevertheless, it is an increasingly important source of income in the “EU8” eastern European countries since they joined the EU in 2004. The UK is the second-biggest source of remittances to the EU8 countries after Germany. For example, they are now worth between 3 and 6 percent of GDP for Latvia, Lithuania and Hungary.

Some experts believe the fall in sterling — together with the predictions of higher unemployment in the UK — will prompt fewer people to move to the UK and more to leave. Research by the UK’s Department for Work and Pensions suggests this is what happened during the 2007-09 financial crisis.

The sterling-zloty exchange rate was tightly correlated with the outflow of EU8 migrants over that period, although it is hard to disentangle any single cause since this was also a time when UK unemployment was rising sharply.

“I think migration from eastern Europe is quite likely to fall quite sharply over the next year or so and the exchange rate is one of the factors,” said Jonathan Portes, an economist at the UK’s National Institute of Economic and Social Research.

The psychological impact of the Brexit vote on the UK’s migrants could be profound, he adds. “If people feel less welcome, they are less likely to stay and more likely to tell their friends not to come. You cannot quantify that, but I think it’s pretty clear there has been a psychological shift in attitudes.”

One solution is to move to a healthier economy with a stronger currency. When the Irish economy contracted sharply during the financial crisis, for example, many Polish migrants moved to places with better job prospects, most notably Norway, according to Michal Myck, director of the Centre for Economic Analysis in Szczecin, Poland.

But sterling’s drop may not repel everyone. Britain’s universities and schools are hoping it will draw in more international students.

Jacqui Jenkins, senior adviser on educational engagement at the British Council, says the current exchange rate is an opportunity to “strengthen the UK’s position” in critical markets such as China, India, Malaysia, Nigeria and the US.

She adds that some universities are already receiving requests from international students to pay their entire course fees upfront while the exchange rate is in their favour. “Our social media monitoring indicates that a cheaper environment for students in the UK could be a real benefit,” she says.

Nick Hillman, director of the Higher Education Policy Institute, agrees. “If a student is on a knife-edge decision whether to go to the UK or the US, Canada, Australia or New Zealand, the exchange rate fluctuation might be the factor that makes the difference.”

“The pound has plunged by 13 percent and it means the $3.7 billion remittances from Britain in 2015 could be 13 percent less in 2016,” Bismarck Rewane, a leading economist in Nigeria told BusinessDay.

“We have over one million Nigerians in the United Kingdom,” said Muda Yusuf, director-general of the LCCI by phone. “The money they send home from mainly London each month, not only supports their immediate and extended families here, it is also building them family houses in different locations in Nigeria.

“As the pound continues to shed value, these amounts would be worthless and would strain diaspora inflow generally into Nigeria and put more pressure on our thinning forex reserves,” Yusuf added.

The pound weakened 0.31 percent to 1.3/$ as at 6:58 pm in London, yesterday (17th August 2016), extending a round of losses in the aftermath of Brexit.

“If people lose their jobs as a result of Britain leaving the European Union, it will be difficult to send money home,” Sewa Wusu, head of research at SCM Capital said in an emailed response to questions.

“The Bank of England has reduced the interest rate to 0.25 percent and it could be lower if the economy worsens, and has announced additional measures, including a £100bn scheme to force banks to pass on the low-interest rate to households and businesses,” Wusu added.

“As it will not be able to limit migration from the EU for some time, it may decide to score political points (perhaps in anticipation of being unable to deliver a genuine Brexit) by limiting immigration from the rest of the world,” wrote Irmgard Erasmus, a Senior Financial Economist at NKC African Economics, in an exclusive note to BusinessDay.

The World Bank estimates migrant workers sent back about $24.9bn last year, making Britain the fourth-largest source of remittances in the world and Nigeria leads in the league of recipient countries with an estimated four billion pounds annually.

Remittances had slowed down in the run up to the second half of the year, when Nigeria sought to defend the ailing naira against the greenback, but with the unpopular policy out of the way, following the currency float onJune 20, “Nigerians in diaspora may be tempted to send money home, now that they can get fair value and may want to take advantage of the fact that the naira has plunged by more than half,” said Kyari Bukar, chairman of the Nigeria Economic Summit Group (NESG), in response to questions.

Sub-Saharan Africa saw a modest growth of 1 percent in remittances in 2015, compared to 0.2 percent in 2014, and the World Bank forecasts remittances to the region to spike 3.4 percent, to $36 billion in 2016, from $35.2 billion in the preceding year.

“Depending on the assumption, remittances may outpace oil proceeds this year, given that there have been significant crude output cuts,” Bukar added.

The top two sources for Nigerian Diaspora remittances in 2015 were the United States ($5.7 billion) and the United Kingdom ($3.7 billion).

BusinessDay
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