What's driving surge in Nigeria’s remittance?

The Central Bank of Nigeria recently reported a surge in Diaspora remittances to $1.3 billion in February, attributing the increase to heightened investor interest in short-term sovereign debt. This spike marks a significant rise from the $300 million received in January of the same year. Concurrently, Nigeria's parliament has signaled the need for an urgent review of the 2024 budget benchmarks due to fluctuations in foreign exchange rates. These key developments in Nigeria's economic landscape raise questions about sustainability, market fundamentals, and the long-term outlook for the nation's economy. Tilewa Adebajo, the CEO of CFG Advisory, weighed in on these dynamics in a recent interview with CNBC Africa. Adebajo commended the upward trajectory in remittances and foreign portfolio investments, viewing them as positive responses to the Central Bank's efforts to address inflation by raising the monetary policy rates. The Nigerian economy's increased attractiveness to investors is evidenced by the inflow of over $1 billion in foreign portfolio investments in February, contributing to a total portfolio inflow of $2.3 billion thus far in 2024, compared to $3.9 billion in 2023. Adebajo emphasized the potential for Nigeria to regain stability and investor confidence, citing previous peaks in foreign investments in 2014 and 2019 amounting to $14 billion and $16 billion, respectively. However, concerns linger over the volatility of the Naira against the US dollar. Although the Central Bank has expressed optimism about the Naira appreciating to 1,200 Naira to the dollar, current trading levels remain closer to 1,500 to 1,600 Naira, prompting questions about the sustainability of short-term initiatives. Adebajo underscored the importance of stabilizing the economy to ensure lasting currency stability, cautioning against erratic market behavior that deviates from underlying economic fundamentals. In discussing the 2024 budget review sought by lawmakers, Adebajo critiqued the knee-jerk reaction to exchange rate movements, emphasizing the need for a comprehensive first-quarter assessment before making significant adjustments. He highlighted the customary practice of periodic budget revisions based on revenue variations, noting that premature interventions could disrupt fiscal planning and undermine long-term economic strategies. The conversation also delved into government revenue challenges, particularly regarding oil production targets. Nigeria's oil output has remained around 1.4 to 1.5 million barrels per day, falling short of anticipated levels. Adebajo stressed the importance of assessing first-quarter results to gauge the effectiveness of recent policy measures, such as the Monetary Policy Committee's rate hikes. With concerns over rising money supply and inflation, the need for data-driven decision-making to guide economic reforms and revenue generation strategies became apparent. As Nigeria navigates the complexities of remittance surges, foreign exchange rate fluctuations, and budgetary adjustments, the underlying message from Adebajo's insights calls for a return to core economic principles and stability. By prioritizing fiscal discipline, data-driven policymaking, and a long-term outlook on economic reforms, Nigeria can chart a path towards sustainable growth and investor confidence.