Remittances

In 2012, for the first time, remittances became the largest external financial source to Africa, ahead of FDI and ODA. In sub-Saharan Africa an estimated 13% of remittances come from other African countries (AfDB). They amounted to USD 60.4 billion compared with USD 56.9 billion in 2011 (World Bank, 2012b). This is a record for the third year running, following the 2009 global financial crisis. Remittances to Africa represented 11% of global remittances in 2012, compared to 8% in 2001. This estimate does not include the unrecorded flows through formal and informal channels. The true size of remittance flows to Africa is expected to be even larger. 09 According to Freund and Spatafora (2005) up to a share of 75% of total remittances to Africa are not officially recorded. This share is larger than in other continents. Remittances are an important source of revenue for some 120 million people in Africa to support consumption, education and health expenses.

Figure 2.07 Remittances to Africa (billion USD, current)

Remittances to African countries are unevenly distributed (Figure 2.7). In 2012, northern and western Africa received 89% of total remittances. This is an increase from the early 2000s when their share averaged 80%. Their proximity to Europe and their population size explain those figures. Nigeria and Egypt together represented 64% of total remittances to Africa with respectively USD 21 billion and USD 18 billion. Sudan, Kenya and South Africa are the only countries from other regions that received over USD 1 billion in remittances. They received USD 1.4 billion, USD 1.3 billion and USD 1.1 billion respectively.

Northern Africa represented 90% of the USD 3.9 billion increase in remittances in 2012. Eastern Africa recorded the remaining remittances, worth USD 400 million. This is a 10% increase compared to 2011. Western Africa and southern Africa saw their remittances decrease by 1% and 9% respectively. These drops are due to lower recorded remittances in large recipient countries such as Côte d’Ivoire, Senegal, South Africa and Mozambique.

The importance of remittances expressed as a share of GDP is also very heterogeneous across Africa. In 2012 the average share of remittances to GDP in Africa equalled 3.0%. This has been stable throughout the past decade. However, for some countries remittances represent a pillar of economic growth. Table 2.3 shows the 15 African countries with the largest share of remittances to GDP for the period 2005-11. Migrant workers to South Africa explain the importance of remittances to Lesotho’s economy.

Table 2.3. Average share of remittances to GDP (Top 15 African countries)

 

Average (2005-11)

Lesotho

35.4%

Nigeria

10.4%

Senegal

10.4%

Cape Verde

10.4%

Togo

10.3%

Gambia, The

9.0%

Liberia

7.9%

Morocco

7.7%

Egypt

5.3%

Guinea-Bissau

5.1%

Tunisia

4.4%

Mali

4.4%

Uganda

4.3%

Benin

3.6%

Sudan

3.6%

Intra-African remittances rose from USD 3 billion in 2000 to USD 5.7 billion in 2011. By contrast, their share in total remittances to Africa decreased from 25% in 2000 to 10% in 2011. South Africa is an important destination for migrants and represents the largest share of intra-African remittances with USD 1.4 billion in 2011 (World Bank, 2012a and b).

Since 2008, Africa has been the most costly region of the world to send remittances to. In 2012, it cost an average 12.4% of the transferred sum to send money to Africa, whereas for South Asia it was only 6.6% (World Bank’s Remittance Prices Worldwide Database). Sending money to South Africa, Tanzania and Ghana is even more expensive, costing respectively 20.7%, 19.7% and 19%. The international community has yet to live up to its commitment to reduce the cost of remittances by 5% by 2014. 10 The “5x5” objective is the G8’s commitment to reduce the cost of remittances by 5% by 2014. The commitment was made at the 2009 Aquila Summit. It was endorsed by the G20 in 2010 which established a “Development Action for Remittances”. This could save up to USD 4 billion annually, according to World Bank calculations.

Send Money Africa” indicates that increasing competition for cross-border payments would lower transaction costs. Banks, the most expensive remittance service provider, are often the only channel for African migrants. Regulatory hurdles slow the introduction of cheaper alternatives and new technologies such as mobile money transfers. M-Pesa in Kenya and Tanzania are successful examples, but the regulatory void between telecom and financial regulations complicates the development of international mobile remittances. In addition, allowing customers to make informed decisions requires more transparent information.

The scope is still wide for policy makers to harness remittances for productive investment. Policies that lower the cost of remittance services may help reduce poverty and increase the financial inclusion of rural households which typically are prone to credit-rationing. At macroeconomic level, “formal” remittances could be a source of development finance and facilitate financial and human capital accumulation through increased spending on education and health. However the risk of Dutch disease effects following exchange rate appreciations due to large remittance inflows remains. And this could undermine the competitiveness of non-traditional sectors and hamper much-needed structural change.

Outlook for remittances

According to the World Bank, remittances to Africa are projected to keep increasing in the medium term, but at a slower pace than in the second half of the 2000s. In 2013, recorded remittances to Africa are projected to increase by 6% to USD 64 billion, against a 7.9% increase to other developing regions. The large African diaspora in Europe, which suffers from the euro area crisis, might be an explanation for this. The average growth rate of remittances to Africa for the past 10 years has been 17%.

Risks to this outlook stem from any further global economic downturn and policy tightening towards migrants. So far, migrants have sustained the volume of transfers throughout the crisis, but as they face tougher economic conditions they may have to reduce payments. According to the OECD International Migration Outlook (2012b), migrant unemployment rates have increased faster than those of native-born workers in France, Greece, Italy, Spain and the United Kingdom since early 2009. Migrant workers in Spain had an unemployment rate of 31.5% compared to 19.5% in 2011. The weaker employment prospects in key countries such as Italy, Spain and the United Kingdom might affect the prospects for future transfers to Africa.

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