Finance

Africa should better manage remittance flows to propel development (report)

Thursday, 14 September 2023 20:45
Africa should better manage remittance flows to propel development (report)

(Ecofin Agency) - Although their volume exceeds that of official development aid and even foreign direct investment on the continent, the remittances from the African diaspora contribute very little to development and wealth creation, a report published last June by Ecofin Pro revealed.

According to this report entitled "La gestion anarchique des envois de fonds des diasporas (the Chaotic Management of Diaspora Remittances)”, remittances increased from over $67 billion in 2016 to $86 billion in 2019. After a slight decline to $84 billion in 2020 amid a global health crisis, they reached over $97 billion, according to 2022 estimates. This means that in Africa, as in most developing countries, remittances exceed both official development assistance (ODA) and foreign direct investment (FDI) flows. According to OECD data, net ODA flows to Africa reached $35 billion in 2021, barely a third of the funds sent by the diaspora during the same year.

Remittances also constitute significant portions of the GDP of recipients: 28.9% in Gambia, 23% in Lesotho, 21.1% in Comoros, 14.1% in Cape Verde, and 10.4% in Guinea-Bissau.

Egypt and Nigeria, the biggest recipients

The Ecofin Pro report found that since 2017, Egypt has been the top recipient country of diaspora transfers in Africa. In 2022, the country received $28.3 billion, accounting for 29% of all remittances recorded on the continent. Nigeria comes second with $20.1 billion, nearly 21% of the total. Next in line are Morocco ($11 billion), Ghana ($4.6 billion), and Kenya ($4 billion).

An analysis of funds received by these five major destination countries (Egypt, Nigeria, Morocco, Ghana, and Kenya) allows for mapping the primary senders. Egypt predominantly receives funds from Middle Eastern countries such as Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar. The United States is the leading provider of remittances to Nigeria. Regarding Morocco, Ghana, and Kenya, France is the primary sender for the former, while the United States is the primary sender for the remaining two.

Contrary to the widespread belief that African migrants mainly send money home from Europe or the United States, several African countries primarily receive their remittances from other African countries. For example, South Africa is the primary sender of remittances to Lesotho. Within the West African Economic and Monetary Union (WAEMU), six out of eight countries mainly receive their remittances from other African countries. Indeed, only Senegal and Guinea-Bissau have a non-African country, France for the former and Portugal for the latter, as their primary source of diaspora remittances.

High fees encourage informal channels

The report also highlights that migrant transfers to Africa are undervalued due to the lack of reliable data and the use of informal channels for money transfers. A study by the African Development Bank (AfDB) covering four sub-Saharan African countries shows that the volumes of informal fund transfers range between 25% and 80% of the total due to the high costs of formal channels. Senders had to pay an average of 8% to send $200 to African countries in Q4 2022, compared to 7.8% in Q4 2021. However, these costs can sometimes go as high as 35%.

Beyond the high fees charged by dominant operators such as Western Union and MoneyGram, remittances represent an underutilized financial resource on the continent. Money transfers made by the African diaspora often serve as a lifeline for the families receiving them. This is especially true as they are primarily directed towards everyday consumption expenses like food purchases and school fees. Consequently, these resources only marginally contribute to financing investment projects and wealth creation. The report recommends expanding available databases on financial transfers from migrants to Africa and promoting fair competition among operators active in the fund transfer segment. This comes at a time when highly dynamic fintech companies like Wave, Sendwave, M-Pesa, and Orange Money are increasingly looking to gain market share by offering more cost-effective services.



 
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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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