According to the World Bank, remittance flows to Sub Saharan African countries will drop by 23.1% from $48 billion in 2019 to $37 billion in 2020 in the wake of the Covid-19 economic crisis.
Industry Opinions

Diaspora Remittances Critical to Post Covid-19 Recovery

According to the World Bank, remittance flows to Sub Saharan African countries will drop by 23.1% from $48 billion in 2019 to $37 billion in 2020 in the wake of the Covid-19 economic crisis.

This is unlike the last decade where a strong growth of remittances was driven by stronger growth in the United States, the Middle East and Asia. In 2019, the top remittance recipients globally were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion) among other countries.

In COMESA region, the leading recipients of remittances in 2019 were Egypt (US$ 26,791 million), Kenya (US$ 2,819 million), Tunisia (US$ 1,912 million), DR Congo (US 1,823 million) and Zimbabwe (US$ 1,730). In terms of contribution of remittances to GDP, Zimbabwe leads with 13.5%, Comoros (11.5%) and Egypt (8.2%).

So far, the wealthiest countries including the United States, France, United Kingdom, Italy and China, who account for up to a quarter of all funds remitted to African countries were some of the worst-hit by the pandemic.

Migrants in the diaspora have lost jobs and taken pay-cuts amidst the coronavirus outbreak and subsequent lockdown leading to the drastic fall in remittances. Thus, many countries have suffered a double hit by the crisis more so those that remittances constitute a significant share of the GDPs.

Diaspora remittances are a key source of investments and enabler of economic growth and sustainable development. They have multiplier effects in the economy through savings, investments, fiscal and debt sustainability.

By increasing the consumer base, remittances expand the revenue base and allow the government to carry more debt or incur more expenditures. At household levels, remittances support the start‑up of small‑scale enterprises, while increased household consumption inspired by remittances increases the demand for locally produced goods and services.

In addition, remittances are a vital source of income for health and nutrition, education opportunities, improved housing and sanitation, entrepreneurship, financial inclusion and reduced inequality.

The World Bank estimates that foreign direct investment will drop by around 35% due to travel restrictions, disruption of international trade and decline in the stock prices of multinationals. Thus, diaspora remittances will remain crucial to many countries in the region.

The United Nations SDG goal No. 10 seeks to reduce remittance costs to less than 3% and to eliminate remittance corridors with costs higher than 5% by 2030. The purpose is to create a convergence between the goals of remittance families, government development objectives,  private sector strategies to tap underserved markets.

Initiatives such as the Global Compact for Safe, Orderly and Regular Migration, demonstrate the international community’s recognition that remittances support hundreds of millions of people across the globe and works to strengthen their development impact on families and communities.

In Africa, the African Union recognizes the role of the diaspora in the development of Africa and encourages their full participation. Indeed, the Directorate of the Citizens and Diaspora organizations (CIDO) coordinates the participation of the diaspora in the African Union.

Moreover, the African Diaspora Network in Europe (ADNE) advocates for the voice of diaspora to be included in development policy planning both in Africa and in Europe.

Within COMESA, the Treaty provides for the free movement of persons, labour, services, right of establishment and residence. Although the provision does not directly provide for treatment of remittances, the Protocols on the free movement of persons, labour and services and that on gradual relaxation and eventual elimination of visa requirements in themselves envisage increased earnings from migrants within the region.

The COVID-19 pandemic has tremendously constrained mobility and travelling across countries. This may reverse the gains already made in promoting greater openness and flexibility in migration. This is because a range of professionals and semi-skilled workers are needed to provide various services.

For instance, about 13% of essential workers, including ICT technicians, teachers, health professionals, sportsmen and women, cleaners, drivers and other general workers in Europe are immigrants. Stringent immigration policies are therefore likely to close out immigrant workers and therefore reduce diaspora remittances.

The other challenge has been the high cost of sending remittances. For instance, the global average cost of sending $200 stood at around 7% in the first quarter of 2019, according to the World Bank’s Remittance Prices Worldwide database.

No wonder the reduction of remittance costs to 3% by 2030 is a global target under the SDGs. For many countries in Africa and the small islands in the Pacific, the costs are above 10% thus encouraging the use of informal channels or even illegal transactions, including money laundering.

In addition, actual data is not captured in most cases leading to underestimations. In Africa, banks are the most expensive remittance channels, charging an average fee of 11% in the first quarter of 2019. Post offices were the next most expensive, at over 7%.

Remittance fees tend to include a premium where national post offices have an exclusive partnership with a money transfer operator.

Within Africa and by extension COMESA, the commitments to remove restrictions on the movement of persons across the region especially professionals and other essential workers is now paramount. Restrictions hinder productivity and growth of both migrant source and destination countries and subsequently the associated remittances.

Going forward, COMESA Member States should undertake financial regulatory reforms to streamline and effectively reduce the costs of sending remittances. This would entail reviewing the Central Bank Acts, Money Remittance Regulations, National Payment System Act, and the E-money Regulations.

The reforms should also guide licensing and operations for Remittance Operators as well as anti-money laundering measures. Member States should not only fully implement the protocols on free movement persons, labour and services and that of elimination of visa requirements, but also develop specific rules and regulations to guide and harness remittances as a critical source economic growth and development.

At the global level, there is a need for sustained migration reforms considering the role played by migrants during the pandemic, with many of them being in the front line. Even more importantly, such reforms will enhance peaceful coexistence of humanity to foster global economic development.

The article was written by Christopher Onyango, the Director of Trade and Customs at the COMESA Secretariat

Contact: [email protected]