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The largest economy in Africa, Nigeria, recently made a seismic economic decision to allow its currency, the naira, to trade freely. The decision to essentially devalue the naira was one largely forced by economic circumstances, but also a decision that might allow for long-term gain even if it means short (to medium) term pain.
The impacts will be widespread, including for Nigerian students looking to study abroad.
Over the last number of years, the Nigeria has essentially had two different rates when it came to exchanging the naira with other currencies – the official rate and the black-market rate.
For the official rate, the amount of naira that could be exchanged was very limited. Its supply was restricted for purchases like medical equipment, and some education payments as well (more on this below), and it was not available for the general public and ordinary businesses. Essentially, the policy was to keep the money in the country.
This restriction of the supply of Naira led to a sprawling black-market of unofficial traders who offered a ‘street rate’ of Naira against other currencies (predominantly the U.S. dollar). These traders would allow ordinary people exchange their Naira for USD and then pay for foreign goods.
While these traders were unofficial, businesses outside of the country would work with them to do business. Without them, it would be next to impossible.
Quite quickly, the two rates diverged, with the black-market rate becoming up to 40% more expensive for buyers versus the official rate. This led to ordinary consumers and businesses paying a lot more on fees and commissions when exchanging currencies than if they could do it through official channels.
For students wanting to study abroad, they were able to apply for the official rate, but that process had a number of challenges.
Students applying to the Nigerian Central Bank for the official rate would often have to wait weeks, if not months, for confirmation. This delay has inevitable consequences in terms of getting accepted to the university, but also is subject to currency swings as well.
“At the moment if a Nigerian student wants to pay the funds directly to the university, they have to complete the Form A for the banks, then maybe only partially pay their fees as they’re not guaranteed they will get approved for the full amount’ says Jack O’Keeffe, Financial Services Account Manager at TransferMate and an expert in student payments out of Nigeria. ‘They might not know this decision for a couple of months, and this opens up the possibility that their place isn’t even held by the university.”
Also, in the time between a student applying for the rate and when they get accepted, the currency may also have been significantly devalued against the currency they want to pay in, making it more expensive for them when they go to actually transfer the money.
Even the act of paying can have challenges.
Credit card payments from Nigeria to international merchants have a history of being declined due to the historical reputation of the country when it comes to international payments, leaving bank transfers as the best way for students to pay fees.
“Our system allows students to go into our portal and see what they need to pay in their local currency, and lock in that rate for 24 hours’ said Jack O’Keeffe. ‘Even with that clarity, it still means the student has to be ready to go to their bank and initiate that transfers, often having to flag that they want to do so in advance so the payment will go through. With all the different elements that they need to align, it can become a real challenge for them.”
Because of these challenges, the unofficial exchange rate ecosystem was often used.
For organizations wanting to accept payments from Nigeria, including payment partners of educational institutions and institutions themselves, they would have to partner with the unofficial traders and accept the high rates, which ultimately meant that those costs ended up being paid (at least partially) by the students themselves.
The current situation has, at least in the short term, added to all these challenges.
First and foremost, the currency devaluation has meant that the cost of studying abroad for Nigerian students is now much higher.
With the currency devaluing by 40% over the past two months, the cost of a university course outside the country has effectively doubled for Nigerian students. Prior to the devaluation, a Nigerian student who needed to pay $10,000 in tuition fees would have needed to exchange 471,000 naira. However, after the devaluation, they would now need to exchange 800,000 naira.
The devaluation has also made it more difficult for Nigerian students to obtain the necessary foreign exchange to pay their tuition fees. Nigerian banks are struggling to meet the demand for foreign currency, and the cost of black-market exchange rates has skyrocketed. This has made it difficult for students to secure the funds they need to pay their tuition fees on time.
This black market also increases the risk of fraud considerably, with students vulnerable to bad operators.
This all combines to make it a difficult time for a Nigerian student trying to study abroad and, without significant government intervention (which looks unlikely), there is no clear path to stabilization in the near future.
There is more than a glimmer of hope for Nigerian students in the long run. Once the currency is stabilized, and the dual exchange rates are not running parallel, the entire flow of money in and outside of the country should end up at a much more stable and predictable place than it was before the devaluation.
“It should make it easier for student studying abroad. It should allow the students a bit more freedom to be able to make an international payment quicker, removing those challenges in terms of paying the amount they want to pay, and the university confirming the payment so their place is confirmed’ said Jack O’Keeffe. ‘Secondly, they’ll know exactly how much it will cost them, and mean they aren’t getting charged exorbitant rates because of the need to use the black-market rate.”
With less cracks and messiness in the financial system, there should be less opportunity for fraudsters to infiltrate it and be easier for banks and payment processors to identify fraud early. This should lead to an improvement in the reputation of the country and allowing for more freedom and ease of money movement, including when it comes to international student payments. wi
Nobody knows exactly where this will all lead. We’ve seen businesses suffer massive losses through the devaluation, and students being badly affected with higher costs for studying abroad.
Underpinning all this is volatile economic conditions that will be incredibly difficult to resolve, but it’s generally thought that bringing the two rates together is a vital step in any progress being made. It should allow for more stability, freedom and security of international money movements out of Nigeria, including international student payments, even if that short-term pain is quite severe.
If you’re an education institution who want to efficiently and safely accept student payments from Nigeria, contact our education team today.
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