The CBN’s New Playbook – And Why Tax Holidays On Investment Will Be Better

As the Central Bank of Nigeria (CBN) policy of Naira 4 Dollar Scheme kicks off soon, we would be looking at how the policymakers  respond when live data begins to arrive. I have called it a “quasi-devaluation” of the Naira, but with the understanding that it is a short-term experiment, we should wait for the data to hit the CBN headquarters. But before that happens, this is what I expect to happen across most countries: remittance  inflow will improve but most may not be real! 

The Central Bank of Nigeria (CBN) needs US dollars desperately to help cushion the nation’s balance of payment, and fight deterioration of the Naira, and is going to Nigeria’s best export: the diaspora community. Yes, the apex bank has unveiled a really ingenious scheme called “Naira 4 Dollar Scheme”. Largely, if you wire US dollars to Nigeria via the approved IMTO (international money transfer operators) like Western Union, the payout bank will pay your recipient N5 per $I besides the recipient receiving the full amount you wired in US dollars. The CBN Governor mentioned in a Diaspora Series organized by Fidelity Bank Plc.

Yes, expect someone to wire $10,000 from New York, gets paid $10,000 in Lagos, and then the N50k bonus. The cost of wiring that money is never going to be more than N50k ($120); the cost to wire $10k from US to Nigeria is $17 via Western Union. Some do think they can use peer-to-peer platforms to move that $10k back to New York, and send it back again for another N50k in Nigeria. This loop can continue, and they will rip big bonuses from the Nigeria treasury!

But note one thing: CBN is aware of this potential risk and that is why it has this requirement that people use the approved IMTOs like Western Union and MoneyGram. Those entities most times will not allow anyone to wire more than $10,000 in a month. And by the time you start shopping for who to help you make extra N50k on your $10k, you can lose that $10k entirely! Yes, a snake can swallow that money, big time, even in New York.

I do think  that this policy is designed to incentivize Nigerian diasporas to send money home. It is too early to know if that will improve remittance over long-term; I mean after the program ends later in the year.  Personally, my choice,  as I noted in my Fidelity Bank presentation, would be to offer a seamless tax holiday on all profits through a special fund vehicle I called Diaspora Growth Nation Fund. 

Yes, if you invest in SMEs, startups, real estate or other productive areas, via official channels like banks, all taxes on profits over 5-10 years would be waived! That is a better way to get people to unload US dollars and hard currency on Nigeria. I am not sure people with many benjamins will care that $1 will add extra N5! That is a distraction! 

Souce @Ndubuisi Ekekwe(https://www.linkedin.com/posts/ndubuisi-ekekwe-36068210_the-cbns-new-playbook-and-why-tax-holidays-activity-6774418718656143360-kYqm