Covid-19 pandemic could spur Nigeria’s fresh demand for diaspora bond

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Devastating impact of the coronavirus pandemic could fuel Nigeria’s fresh interest in so-called diaspora bonds that allow migrants to support their countries of origin, experts from the World Bank and others, Naija247news has learned.

Dilip Ratha, the World Bank’s lead economist on migration and remittances, told Reuters that diaspora bonds could generate about $50 billion a year in total for developing countries, potentially helping to offset a sharp drop in foreign direct investment that is slated to fall by 37% this year.

Naija247news reported that Nigeria’s first diaspora bond, issued in 2017, was a resounding success. It raised $300 million for investment in infrastructure from Nigerians overseas and was oversubscribed by 130%. The government is now reportedly planning a second similar offering.

A diaspora bond is basically a government debt that is targeted but not limited to the nationals of the country that are living abroad. The idea is based on a presumption that because of emotional ties to their country of origin, expatriates may find investing in such products worthwhile, especially if they are financing development projects like infrastructure.

Nigeria is predicted to experience worst economic recession in three decades, as it as the nation’s economy to recede by 3.4% in 2020 according to World Economic Outlook report by IMF.

The reports further revealed that Nigerian economy is expected to grow by 2.4% in 2021.

Chief Economist, IMF, Gita Gopinath, said, “For the first time since the Great Depression, both the advanced economies and emerging and developing economies are in a recession.

“For 2020, growth in advanced economies is projected at -6%. Emerging markets and developing economies which typically have normal growth levels well above advanced economies are also projected to have negative growth of -1% and -2.2% if you exclude China.”

Nigeria foreign Reserves have fallen 12% this year to $33.8 billion, raising concerns that the central bank would soon run out of firepower to defend the currency.

Meanwhile the Nigeria naira weakened 11% to 425 in the parallel market since March 20 when the Abuja-based regulator stopped foreign exchange interventions, according to abokifx.com, a website that collates street rates in Lagos. The local currency unit traded for 389 naira per dollar on the interbank market as of 3:45 p.m. in Lagos.

Israel, which has raised more than $40 billion through such bonds, saw uptake soar during its 1967 war.

Benson said Nigeria’s first diaspora bond was oversubscribed by 130% and raised $300 million, though Ethiopia had less convincing results with its 2008 and 2011 bonds.

Such bonds work best if structured carefully and allow early withdrawal if investors want to back other projects in the country concerned, Benson says.

‘MOTIVATED’
“It’s a tool that could work for any country with a significant pool of potential diaspora investors,” he said.

“People are strongly motivated by seeing this kind of investment go toward healthcare and education, and seeing that their families, their friends … back home are benefiting.”

For all the mooted benefits, however, doubts remain over the potential of diaspora bonds in the current environment.

The World Bank has received requests for help to develop financial products targeting migrant workers from 20 countries ranging from El Salvador to Bangladesh, according to Dilip Ratha, lead economist in the migration and remittances team at the World Bank.

“They are a simple recognition of the fact that migrants send money home but they also save a significant amount, quite possibly more than they send home, in bank deposits on which the interest rate is close to zero,” he said. “Offering a diaspora bond at 4 to 5 per cent in dollar terms can attract their savings.”

What are remittances?

Money and goods senT by workers and other people living abroad to their families and friends at home. As global migration patterns have intensified over the past couple of decades, remittances have grown to become a significant contribution to some countries’ economies.

Naija247news understand that Nigerians in the US are amongst the most educated and entrepreneurial migratory groups, with their median household income standing at US$62,351, compared to the national average of US$57,617 as of 2015.

But how does this make Nigeria the number one African country for remittances? The answer is in the commitment and duty that Nigerian expats exhibit by regularly remitting for the well-being of their family.

Such is the inflow of capital into the country that World Bank reports revealed Nigeria’s remittance flows stood at US$ 25.08 billion and accounted for 5.74% of its GDP in 2018.

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