Remittances, which are monies sent home by migrants to their families, are known to provide a financial boost to millions of households. The positive impact that they have is seen in the fact that their flows into Africa surpassed Foreign Direct Investments (FDIs) and Developmental Aid in 2019 for the first time, reaching a total value of $48 billion. These are only recorded flows; the true size of remittance flows, however, including those through informal channels, is often predicted to be even larger.
Historically, the money sent to the continent goes to the countries that are most dependent on remittances. According to the Africa Growth Initiative, the top recipient countries in 2019 were South Sudan, Lesotho, and The Gambia. In Sub Saharan Africa, most of the money sent to the continent in 2020, went to Nigeria. While recorded data is not available for Somalia, it is widely believed that the country is heavily dependent on remittances.
Remittance flows to Sub-Saharan Africa are expected to significantly increase in the long run due to the increasing number of working-age population and income gaps.Tweet
One way to reduce the cost of sending money is by reducing the fees that remittance service providers charge. The cost of sending money home is the highest in the world. It is also three times higher than the target for remittances. The cost of sending money abroad is significantly higher than it was during the COVID-19 crisis. This is even higher compared to the cost of sending money from the United States (US) or Europe. Doing away with the cumbersome process of sending remittances can help boost the flow of financing for development projects. The opening of money transfer operators’ doors to national post offices and other partner institutions could help boost competition in the remittance market.
According to the latest estimates published in the World Bank’s Migration and Development Brief, the effects of the COVID-19 pandemic and the ensuing economic crisis continue to spread. As such the amount that migrant workers send home is expected to decline by 14 percent in 2021.
The COVID-19 pandemic has significantly affected new migration and migrant remittance flows globally. It has also discouraged people from travelling, especially to areas most affected by the virus. The COVID-19 pandemic has affected many aspects of the remittances industry. It has caused many migrant workers to lose their jobs and reduced their ability to send money home.
In many African countries, the employment levels of foreign workers have fallen and as a result, it has led to a significant number of workers returning to their home countries. This has in turn gravely affected the flow of remittances within the African continent and is thus contributing to the decline in numbers in 2021 predictions. This is creating a host of problems for countries receiving remittances, including finding jobs, housing placements and economic sustainability which most African countries have long depended on for the economic boost from remittance flows. Remittance flows to Sub-Saharan Africa are expected to significantly increase in the long run due to the increasing number of working-age population and income gaps. High-income countries’ average income is over 50 times that of low-income countries. This gap is expected to widen as the pandemic worsens.
While it is possible to impose financial restrictions on migrants sending money back home, such as certain foreign workers, host countries should not impose other restrictive measures that could prevent businesses from hiring new employees during the recovery phase, such as travel restrictions.
Remittance flows to the East Asian and Pacific regions were expected to decrease by 11 percent in 2020 due to the impact of COVID-19. Remittances to countries in Central and Europe were also expected to fall by 16 percent to 48 billion in 2020 due to the impact of the pandemic and lower oil prices.
African remittances can help African countries mitigate the socioeconomic impacts of COVID-19. These funds support various initiatives such as the development of rural economies, food systems, and regional value chains.Tweet
As for regions in Latin America and the Caribbean, remittances were predicted to decline in 2020 to about $96 billion, according to a report by the World Bank. The decrease was mainly due to a drop in flows to Mexico.
The remittances prediction to the Middle East & North Africa decreased by 8 percent in 2020 due to the global economic slowdown. This is in contrast to the uptick in the outflows from Egypt. Weak oil prices have also in turn affected the outward remittances of Gulf Cooperation Council members to Africa. The value of remittances depends on the exchange rate of the source currency. When the dollar is valued less than the recipient country’s currency, the migrants send more money home. In Africa, many countries still have various forms of currency control. This has resulted in a divergence between the market and the parallel rates. The decline in remittances is threatening the stability of millions of families on the African continent. This is why the government and international community should work together to support African households experiencing hardship.
Some countries have taken the lead in supporting families that rely on remittances. For instance, the Philippines has provided cash assistance to over a million workers during the government’s quarantine period. In Ghana, the government allowed mobile phone users to transfer money to family members without having to provide documentation. In Uganda, mobile money transfer fees were also lowered. The Kenyan Central Bank has rolled out a series of measures to preserve the ability to send and receive money from home. This includes waiving the fees that are typically charged when transferring money from a bank account to a digital wallet.
The developed world has a part to play in complementing these resilient measures, including taking steps such as:
- Digitising the remittance value chain can help lower costs, increase volumes, and provide a better and more convenient way to send money;
- Money operators should be classified as essential businesses to ensure they can remain in operation during periods of COVID-19 lockdowns;
- Safety nets should be established for rural households that rely on remittances;
- Tax incentives should be given to remittance receivers in their host countries to encourage faster and cheaper remittance transactions;
- Countries should include programmes during instances where global pandemics and economic recessions affect sending money, which will benefit migrant workers and allow them to stay in the country.
African remittances can help African countries mitigate the socioeconomic impacts of COVID-19. These funds support various initiatives such as the development of rural economies, food systems, and regional value chains. Thus, remittances should be seen as an essential component of governments’ COVID-19 strategies as they contribute to financing development and economic growth. A reduction in these vital sources of income could have detrimental effects on the current crisis.
Halima Ahmed is a Research Fellow at ACCORD.