In light of growing concerns over the fluctuating value of the Nigerian naira, the Financial Derivatives Company (FDC) has weighed in on the potential impact of the proposed $10 billion diaspora fund set up by the Federal Government.
While acknowledging the fund as a significant move, the FDC asserts that it might only provide temporary relief to the current pressure on the foreign exchange market, rather than serving as a definitive solution to currency volatility.
In a recent report released over the weekend, the FDC highlighted that the $10 billion diaspora fund represents approximately 31% of Nigeria’s foreign exchange reserves. Describing it as a “rescue measure,” the firm emphasized that a more sustainable approach to addressing the forex crisis necessitates increased earnings through exports of goods and invisibles.
Despite its limitations, the FDC noted that the diaspora fund initiative could foster remittances, attract diaspora investment, and contribute to economic transformation and development. Nigeria has consistently ranked as the second-highest recipient of remittances after Egypt over the past decade, with both countries receiving the largest inflows of remittances into Africa in 2023.
Official remittance inflows into Nigeria have averaged about five percent of GDP over the past two decades, surpassing oil revenue since 2016. The actual amount of remittances could be higher due to unrecorded transactions or unofficial channels. In 2022 alone, migrants’ remittances amounted to $20.13 billion, representing approximately 4.3% of GDP and exceeding FDI flows sixfold.
Injecting the $10 billion diaspora fund into the Nigerian economy could have multifaceted implications, according to the FDC. Apart from bolstering foreign exchange reserves and stabilizing the naira, the influx of funds could stimulate economic growth by providing capital for investment, entrepreneurship, and consumption.
Additionally, diaspora remittances have the potential to improve Nigeria’s balance of payments and alleviate poverty by supporting families with essential needs such as education, healthcare, and living expenses. However, the FDC cautioned that while the funds may offer stability, they come with higher costs compared to commercial debt, necessitating solid guarantees for investors regarding redemption at maturity.
The $10 billion diaspora fund, according to the Minister of Industry, Trade and Investment, Doris Uzoka-Anite, underscores the government’s commitment to leveraging the resources of its citizens abroad to drive economic growth. The initiative aims to channel investments into critical sectors such as infrastructure, healthcare, and education, with the goal of fostering sustainable development and resilience in the Nigerian economy.
