Against the background of a growing belief in some quarters that diaspora remittances hold the key to boosting foreign exchange availability in Nigeria, analysts have said that the election of Donald Trump as President of the United States could affect the amount of such funds that come into the country.
In a report obtained by New Telegraph, analysts at Exotix Partners stated that even though it was still too early to assess the exact impact of the victory on emerging and frontier markets such as Nigeria, the global uncertainty triggered by the development could put pressure on remittances growth and lead to devaluation wars.
According to the experts: “One area where global uncertainty may appear is US trade policy, with the suggestion of outright protectionism. US protectionism would be negative for EM FX and could lead to ‘beg-gar thy neighbour’ competitive devaluations and trade wars from countermeasures from other countries.
“Another area for concern for EM/frontiers under a Trump win is that it will put greater long-term pressure on immigration to/remittance growth from the US (Nigeria, Central America and Caribbean), and lead to higher defence costs (for the GCC, Vietnam).”
Data published by the World Bank’s Migration and Remittances Factbook 2016 shows that remittances from Nigerians living abroad hit $20.77 billion in 2015, making the country the sixth largest recipient of remittances in the world.
The report stated that the top two sources for Nigerian diaspora remittances in 2015 were the United States ($5.7 billion) and the United Kingdom ($3.7 billion).
In a bid to boost forex availability in the system, the Central Bank of Nigeria (CBN) had in a circular on the sale of foreign currency proceeds issued on July 22, 2016, stated that all registered International Money Transfer Organisations (IMTOs) should remit foreign currency to their respective agent banks in Nigeria for disbursement in naira to the beneficiaries while the foreign currency proceeds are to be sold to Bureaux De Change (BDC) operators, for onward retail to end users.
In addition to predicting that Trump’s victory could have an adverse impact on remittances growth, the Exotix Partners analysts also said that the development may affect foreign inflows for emerging and frontier markets. They said:
“We see a Trump win as lowering risk appetite (increased risk aversion), which will have a negative impact on bond (external debt and local currency), currency and equity valuations in emerging and frontier markets.
The US, and US Treasuries, may retain their safe-haven status and benefit from a flight out of risk (flight to quality), although we’d expect EM nominal yields to rise as EM country risk widens on economic, trade and foreign policy uncertainty.
This would expose those countries with already weak fundamentals, low reserves and high financing needs.