THE EFFECT OF MIGRANTS REMITTANCES ON THE ECONOMY OF NIGERIA FROM THE PERIOD 1990 TO 2015 USING TIME SERIES DATA
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
A Remittance is a transfer of money by a foreign worker to an individual in his or her home country. Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries. Workers’ remittances are a significant part of international capital flows, especially with regard to labour-exporting countries. (Al-Assaf et al, 2014).
Some countries such as India and China, receive tens of billions of US dollars in remittances each year from their expatriates in other countries. In 2014, India received an estimated $70 billion and China an estimated $64 billion. (Simon, 2016).
Global flow of remittances are expected to accelerate by 4.1% in 2016, to reach an estimated $610 billion, rising to $636 billion in 2017 and remittances flows to developing countries are expected also to recover in 2016 to reaching $459 billion, rising to $479 billion, in 2017.
Remittances to Africa plays an important role to national economies. However, little data exist as many rely on informal channels to send money home. Immigrants from Africa today numbers approximately 20 to 30 million adults, who send around $40 billion USD annually to their families and local communities back home. For the region as a whole, this represent 50 percent more than net official development assistance (ODA) from all sources, and, for most countries the amount exceeds Foreign Direct Investment (FDI). (IMF, 2016)
Most African countries restrict the payment of remittance to banks, which in turn, typically enter into exclusive arrangement with large money transfer companies such as Western Union or Money Gram. This result in limited competition and limited access for customers, although there are a number of new players aiming to disrupt this established Money Transfer Operators (MTOs) model, such as Xoom and Willstream, which leverage increasing mobile phone penetration in the region and provide different rate structures to Diaspora customers.
According to a World Bank study on Migration and Development, Nigeria is by far the top remittance recipient in Africa, accounting for $10 billion in 2010, a slight increase over the previous year ($9.6 billion). Other top recipients include Sudan ($3.2 billion), Kenya ($1.8 billion), Senegal ($1.2 billion) etc. In 2014, 17.5 million Nigerians lived in foreign countries, with the UK and the USA having more than 2 million Nigerians each. (World Development Indicator)
According to the International Organization for Migration, Nigeria witnessed a dramatic increase in remittances sent home from overseas Nigerians, going from USD 2.3 billion in 2004 to 17.9 billion in 2007, representing 6.7% of GDP. The United States accounts for the largest portion of official remittances, followed by the United Kingdom, Italy, Canada, Spain and France. On the African Continent, Egypt, Equatorial Guinea, Chad, Libya and South Africa are important source countries of remittance flows to Nigeria, while China is the biggest remittance-sending country in Asia.
During disasters or emergencies, remittances can be a vital source of income for people whose other forms of livelihood may have been destroyed by conflict or natural disaster. The recent internationally coordinated effort to stifle possible sources of money laundering and terrorist financing has increased the cost of sending remittances, directly increasing costs to the companies facilitating the sending, and indirectly increasing the costs to the person remitting. As in some corridors a sizable amount of remittances is sent through informal channels (family connections, travelling friends, local money lenders, etc.). According to the World Bank Migration and Remittances Factbook, 2011, some countries do not report remittances data. Moreover, when data is available, the methodologies used by countries for remittance data compilation are not publicly available. A 2010 world survey of central banks found significant differences in the quality of remittance data collection across countries: some central banks only used remittances data reported from commercial banks, neglecting to account for remittance flows via money transfer operators and post offices. (Irving et al, 2011).
The extent to which remittances produce benefits for developing countries is contested de Haas and Hein, (2012). World Bank economists contend that remittance receivers’ higher propensity to own a bank account means that remittances can promote access to financial services for the sender and recipient, claimed to be an essential aspect of leveraging remittances to promote economic development.
Meanwhile, scholars have expressed concern about the ability of remittances to address the structural causes of economic underdevelopment and see an increasing policy emphasis on finance as shift towards a ‘self-help development (Rankin and Katharine N, 2001). From macroeconomic perspective, there is no conclusive relationship between remittances and GDP growth, (Barajas et al, 2011), while remittances can boost aggregate demand and thereby spur economic activity, other research indicates that remittances may also have adverse macroeconomic impacts by increasing income inequality and reducing labour supply among recipient countries. (Lincoln et al, 2012).
Remittance can also indirectly promote community development through spillover mechanisms. First, increased consumption of migrant households can generate multiplier effects. If the recipient families increase their household consumption on local goods and services, this will benefit other members of the community through the increase in demand, which stimulates local production, thereby promoting job creation and local development. Second, remittances are also found to prop up the formation of small-scale enterprises, thereby, promoting community development. International remittances ease credit constraints by providing working capital for recipients to engage in entrepreneurial activities (Woodruff and Zeneto, 2001).
THE EFFECT OF MIGRANTS REMITTANCES ON THE ECONOMY OF NIGERIA FROM THE PERIOD 1990 TO 2015 USING TIME SERIES DATA
