It is well known that almost all Nigerians will jump at any opportunity to emigrate to greener pastures. But, the exodus has accelerated in the past eighteen months as thousands of young Nigerians have relocated to Europe, East Africa, and most notably, Canada. Unfortunately for our local industries, many of these departees are professionals in finance, technology and medicine, meaning that Nigeria is losing a chunk of its most talented youth.
However, what we lose in talent and human resource, we can gain in remittances from abroad.
Typically, Nigerians living abroad remit (send) money to friends and family back home. According to the World Bank, in 2017, the diaspora remitted $22 billion back to Nigeria, equivalent to our total crude oil earnings. In essence, Nigeria receives as much money from its diaspora as it does from crude oil, the backbone of its economy.
Remittances are a booming global business. The World Bank estimates that global remittances grew 10% to $689 billion in 2018, with developing countries receiving $528 billion of this. Sub-Saharan Africa (SSA) receives a relatively small share of this (less than $60 billion) and Nigeria accounts for over a third of all SSA remittances. Giant of Africa indeed.
For countries with a large diaspora population such as Nigeria, workers’ remittances are a significant part of international capital flows and foreign exchange earnings. As more middle-class Nigerians depart the country, this influence will continue to rise. This creates is an opportunity to explore an untapped resource for development—direct diaspora investments.
DDI as a Complement to FDI
It is difficult to exaggerate the investment potential of diaspora funds. For context, Nigeria’s remittances in 2017 alone were larger than the combined foreign direct investment (FDI) brought into the country in the last ten years, as recorded by the National Bureau of Statistics. This is due to a combination of factors including more Nigerians exiting the country to well-paying jobs abroad and a poor investment climate unwelcoming to foreign investors.
But, how we use remittances matters.
Typically, these remittances into Nigeria are earmarked for family support and education. However, there is little evidence to show that this helps countries develop. The International Monetary Fund (IMF) has highlighted the lack of a remittance success story, i.e. a country that has ridden to development on the back of remittances, pointing that, “No nation can credibly claim that remittances have funded or catalysed significant economic development.”
So, Nigeria needs to transition from remittances for sustenance to remittances for investments and economic development. What we call direct diaspora investments.
Given the size of remittances inflow to Nigeria and the population and relative wealth of Nigerians resident abroad, it is surprising that the Nigerian diaspora as a source of formalised investments is yet to be significantly explored. Nigerian-Americans, for instance, have a median household income well above the American average. This shows the opportunity to harness alternative funding sources for the government and local businesses.
Harnessing Untapped Opportunities
Doing business in Nigeria is not easy. Therefore, to encourage investments into the local economy by diaspora Nigerians, there is a need for a structured approach which will encourage diaspora investments into the domestic economy.
Nigeria successfully issued a debut diaspora bond in 2017, but the bond was mainly available via private bankers and wealth managers. A similar initiative—perhaps a separate sovereign wealth fund for the diaspora—would likely be successful, looking at the experiences in India and Macedonia as learning points.
The real challenge would be in finding bankable projects that diaspora investments can fund. Here, there is an avenue for the public and private sectors to work together to unlock diaspora access to funding social enterprises and small businesses.
Such could present a business opportunity for companies who can match small scale enterprises in tech and agriculture to diaspora investors, creating a new class of angel investors and providing funding for local enterprises.
A practical way of doing this would be to have an office in the new Diaspora Commission focused exclusively on facilitating diaspora investment into priority sectors of the economy, perhaps by providing tailored forms of preferential treatment. Of course, it would be important to ensure that the system is not abused.
Cost and Technology
In the past, technological and regulatory frictions ensured that a large proportion of migrants’ remittances passed through informal channels and were, thus unrecorded. Although this has largely improved, further easing the process of investment repatriation by eliminating stumbling regulations could increase remittances inflows and facilitate diaspora investments.
The cost of sending money from abroad remains prohibitively high, particularly in Sub-Saharan Africa, and the hope is that new technologies like Blockchain and the growth of the domestic FinTech landscape would help push costs down.
Remittances are good, but they only provide (some) financial compensation for the departed worker. For every young professional that emigrates, Nigeria loses substantial economic value-add that remittances cannot cover.
The net effect of migration of skilled labour is negative, more so if all they send back is money for school fees and weddings. But now the message is clear – Nigeria needs to milk its departed workers more by using direct diaspora investments.