Diaspora remittances, these are money sent home by Nigerians, working in foreign countries, contribute a large chunk to the Nigerian economy. Last year alone, it was reported that the sum of $25 billion was officially remitted into the country by Nigerians working abroad. This, according to PricewaterhouseCooper, PWC, represents a whopping 83 percent of the country’s 2018 budget. This is as far as it goes, BABAJIDE OKEOWO in this report takes a look at the untold story of how Money Transfer Operators, MTO, are actually reaping the benefits of the Diaspora remittances and the pain Nigerians go through to remit money home.
Oyeyemi Awe lives in the United Kingdom. He immigrated to the UK about 15 years ago and works in Greensmiths, an artisan supermarket in London. Every month, he sends home some money to his aged parents, wife, and children back in Nigeria for their upkeep and also to train his younger ones in school.
However, instead of receiving the money sent home in foreign currency, the money is converted to the local currency, the naira, thus depriving the family the extra it could have gotten if the family had received the money in foreign currency. Not only that!
A few weeks ago, a former Minister of Finance in Nigeria, Chief Anthony Ani, had raised an alarm that it appears that there is massive foreign exchange laundering going on between international Money Transfer Operators, MTOs, in cahoots with local banks.
According to him, he went to an MTO’s office at Marble Arch, to remit the sum of £500 to his son in Nigeria.
To his surprise, he was told he had to first convert the money to dollars and to his further surprise, the MTO gave him a quote in naira to be claimed by his son, which he refused.
In Ani’s words, “I refused their naira equivalent and insisted that my son must be paid in dollars,” he said.
What this means in simple terms is that whenever any individual remits foreign currency to Nigeria, instead of receiving the amount in the originating currency either in dollars or pounds, the intended recipient is paid in naira equivalents, which in turn will have an impact on the foreign reserves of the country.
“It was obvious to me that there was an arrangement between our Nigerian banks and Western Union/MoneyGram, whereby the former pays from their excess naira liquidity while the later retains the dollars abroad. In other words, the dollar remittance is retained abroad and is laundered by the Nigerian banks. This is definitely against the law, which provides that all remittances must be brought into Nigeria in foreign currency via a domiciliary account.
READ ALSO: http://Quack doctor kills mother of four while procuring abortion
“If by chance, as in my case, the dollar is remitted into Nigeria, the Central Bank of Nigeria on August 14, 2014, introduced the Outward Money Transfer Service and authorised the same MoneyGram and Western Union to re-export, in tranches of $5,000 per transaction, to Nigerians abroad, on payment of the naira equivalent at the CBN rate of exchange. Thus, Nigeria is the only country in the world re-exporting its remittances. It is relevant to note that the naira is not a convertible currency but remittances which are meant to stabilise our exchange rates are re-exported,” he said.
Johnson Chukwu, MD/CEO of Cowry Assets Management does not see this issue as a big problem positing that Nigerians must understand that dollars is not a legal tender in Nigeria.
“We must understand that dollars is not the legal tender in Nigeria, you cannot go to the market and buy goods with dollars. Paying beneficiaries in local currency is not a major issue. The good thing is that the exchange rate at both the official and parallel market is almost similar, there is no yawning gap between the official and parallel market rate. Additionally, if the beneficiaries have a domiciliary account, he/she can claim his or her remittances in dollars and go to the parallel market to exchange it, it is only when the beneficiary does not have a domiciliary account that the money is paid in Naira equivalent,” he told The Nigerian Xpress in an exclusive telephone interview.
This is not the only challenge that Diaspora remittances are grappling with. A recently released World Bank report shows that the cost of sending money to sub-Saharan Africa continues to be far higher than any other region in the world. On average, to send $200 to a country in the region will cost almost $19 in the first quarter of 2018. This is more than 20 per cent higher than the charge for a remittance to any other region.
African Remittance Market facing stiff challenges-Report
In a recent report, the International Fund for Agricultural Development (IFAD), adduced some reason for the challenges facing remittances to Africa. According to the report, the formal market for money transfers to Africa is relatively young and faces the challenges typical of emerging markets. These challenges include uncertainty about the volume of remittances, limited competition, high transfer costs and a lack of technological innovation.
According to the report, “Money transfer operators (MTOs) dominate the market for transfers from United States and European migrant destinations. There are fewer than 100 MTOs operating in the entire African marketplace, together comprising almost 90 per cent of all Remittance Service Providers (RSPs).
Western Union and MoneyGram call the shots
Of the MTOs, Western Union and MoneyGram are, by far, the most significant market players. As pioneers, these companies were instrumental in creating the international network that has made remittance transfers possible. Both companies, however, have protected the returns on their initial investment by requiring that agents sign exclusivity agreements. These agreements effectively ‘lock’ more than half of all available payout locations. Because they apply to all agents – banks, foreign exchange bureaus and post offices, among others – an effective control of 65 per cent of the authorized payout market results. Entities wishing to partner with these companies have to sign exclusivity agreements. This prevents other competitors from expanding their network beyond institutions that are not agents of the two largest companies or are not in the market
The continuing dominance of Western Union and MoneyGram is not a result of exclusivity agreements only. However, among the institutions paying out remittances there is also a lack of knowledge of the money transfer market. Many African banks incorrectly perceive Western Union and MoneyGram to be the only companies offering international money transfer services. As a result, banks are prepared to sign exclusivity agreements in return for guaranteed volume. As competition increases and more actors enter the market, banks remain locked into exclusive agreements and become less competitive. At the same time, those living in the geographical area covered by these institutions remain subject to higher costs than the market would otherwise dictate.
Experts are of the opinion that the price of sending money is inflated by two companies – Western Union and MoneyGram – which hold a duopoly over the global industry.
Maria Quattri, co-author of a recent report by the Overseas Development Institute (ODI) on Africa’s remittance sector is of the opinion that regulatory reforms in the European Union, EU and the US, coupled with parallel reforms in Africa, are needed.
“Financial regulators should investigate whether or not money-transfer operators are securing unreasonable margins on transfers to Africa by exploiting their market power. Fundamentally, the problem comes down to three related issues: lack of competition, insufficient transparency and restrictive business practices” she said.
Quatarri proposed the way out. According to her, “African governments should revoke exclusivity agreements that bind banks and agents to certain money-transfer operators. These are sole-use agreements which stipulate that once a bank or agent works with, say, Western Union or MoneyGram, they cannot work for other providers. This in turn restricts entry into the marketplace” she added.
Other money transfer operators agree. “Western Union and MoneyGram are ubiquitous and that dominance has allowed them to dictate terms in many markets – in some cases imposing punitively high fees,” said Ismail Ahmed, chief executive of online money transfer firm WorldRemit.
Why we are at the forefront of remittances –CEO
According to Hikmet Ersek, Western Union Chief Executive Officer, CEO, Western Union has remained at the forefront of remittances in the world because of their innovation.
“Right now, Western Union has one of the largest digital platforms for money movement in the world. Our focus on inclusive innovation powers a full range of options to serve the broadest possible spectrum of consumers. In a world abuzz over virtual currencies, we offer digital services that still pay out in local currency throughout the most remote parts of the world. Pairing our fast-growing digital network with our retail, account and mobile wallet pay-out presence allows us to serve customers using their choice of digital or cash, creating a truly inclusive platform. I’m proud to say that the hard work Western Union has done over the past several years to innovate, both by building our technology stack and honing our operations to a sharp customer focus, has left us in an ideal position to keep moving money for better — for our stakeholders and the world we all live in,” he said.
