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» 23.04.2010 - World Bank funding targets Africa’s malaria fight
» 14.04.2010 - No development aid shortfalls despite crisis
» 28.10.2009 - Tunis forum makes recommendations on protecting African remittances
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Politics | Economy - Development

Money sent by African migrants rivals aid

afrol News / Africa Recovery, 25 November - Every day, thousands of Africans living abroad line up in money-transfer offices to wire home the odd dollar they are able to save. From the US, Saudi Arabia, Germany and Belgium - the top sources of remittances to developing countries - some of the money finds its way deep into the rural areas of Africa. The total of money sent is more than foreign development aid.

Over the years, some of the money has made its way to the Kayes region of Mali. There, the World Bank reports, contributions from Malians living in France have helped build 60 percent of the infrastructure. About 40 Malian migrant associations in France have supported nearly 150 projects.

Yet most of the money sent home by migrants is unrecorded, and therefore does not enter many countries' national statistics. Development planners increasingly stress the importance of tracking this money. That could help governments try to increase remittances as a source of development finance and better channel them into productive sectors.

Throughout the continent, financial and monetary policies and regulations create barriers to the flow of remittances and their effective investment. "For a capital-poor continent like Africa, you can't ignore this source of income," says South African Institute of International Affairs researcher Mills Soko. "In Africa it is not accorded the attention it deserves."

A number of developing countries, including Brazil, Mexico, India and the Philippines, offer incentives to attract such transfers into local savings and investment funds. A private firm, Bannock Consulting, reports that these countries have set up migrant pension plans, offer preferential loans or grants for business ventures using remittances and provide access to capital for recent returnees. As a result, they are reaping rewards from having a large pool of citizens living abroad.

All too often, policy debates on migration have focused on the loss of skills and labour from poor to rich nations. An estimated 3.6 million Africans are living in the diaspora, some of them highly trained professionals. The migration of such workers has caused the loss of skills and labour in vital areas of the economy. Agriculture, a key sector in many African countries, has suffered because of losses from the rural areas. As a result, African governments have often tended to discourage migration.

Today, more people are living outside their countries of birth than ever before. In 2000 an estimated 175 million people worldwide - one in every 35 - were living outside their native countries. With the advent of globalisation, these numbers are set to increase by a projected 2–3 percent annually. Remittances offer an opportunity for developing countries to look at ways of benefiting from their citizens who have chosen to live and work abroad, development specialists hold.

Set at an esimated US$ 126 billion in 2004, remittances were developing countries' second most important source of foreign exchange. That same year, foreign direct investment inflows were US$ 165 billion, while total official development assistance amounted to US$ 79 billion.

Also the World Bank in a recent report identifies remittances as an increasingly important source of development funding which, in some countries, outpaces official development assistance. "Remittances to developing countries from overseas resident and non-resident workers are estimated to have increased by US$ 10 billion (8 percent) in 2004, reaching US$ 126 billion," the Bank reports.

The previous year, they grew by US$ 17 billion, with much of the increase occurring in low-income countries. Most recipients are middle-income nations, but remittances to poor countries are significant in relation to gross domestic product, the World Bank notes.

Yet the figures reported by the World Bank take into account only official transfers. If unofficial flows were added, the total numbers could be 2.5 times more. "Flows through informal channels ... are not captured in the official statistics, but are believed to be quite large," the World Bank reports.

For an undocumented Zimbabwean who lives in Dallas, Texas, unofficial transfers are the best bet. "I, like many of my colleagues, rely on informal networks of friends to send money home, because I do not have proper documentation." He says that he sends between US$ 200 and 1000 each month. He also prefers informal transfers because of the higher exchange rate on the parallel market, in which traders are willing to pay as much as double the official rate.

However, remittances have grown much less in Africa than in oher developing countries, the World Bank notes. Total remittances to Africa amounted to US$ 9 billion in 1990 and by 2003 had reached US$ 14 billion, and the continent receives about 15 percent of flows to developing countries. Over the last decade, Egypt and Morocco have been the largest recipients on the continent and North Africa as a whole received more than 60 percent of total transfers.

In sub-Saharan Africa, Nigeria is the largest recipient, taking between 30 and 60 percent of the region's receipts. Though official figures are not available, economists believe that money sent home by Nigerians in various parts of the world now exceeds US$ 1.3 billion annually, ranking second only to oil exports as a source of foreign exchange earnings for the country.

For some smaller economies, workers remittances account for a large chunk of national income. Lesotho receives the equivalent of between 30 and 40 percent of its GDP from workers abroad, mainly in neighbouring South Africa. In Eritrea, the World Bank notes, remittances represented 194 percent of the value of exports and 19 percent of GDP. During the 1990s, remittances covered 80 percent of the current account deficit of Botswana.

According to the World Bank, the developmental impact of remittances will depend on their continued flow, and that in turn will depend on the ease with which money can be transferred. The Bank estimates that if transaction costs were lowered even by 5 percent, remittances to developing countries would increase by US$ 3.5 bn a year.

In many countries formal money transfers are expensive and at times heavily taxed. US researchers who have examined ways to reduce transfer fees report that average costs amount to 12.5 percent of the sums transferred, amounting to US$ 10–15 billion annually.

Yet there are also some risks for economies that rely too much on remittances to finance development, notes the International Organisation on Migration (IOM). Unlike aid, remittances to individual countries in Africa are highly volatile and unpredictable.

Between 1980 and 1999, the standard deviation of annual transfers was 17 percent in Egypt, more than 50 percent in Cameroon, Cape Verde, Niger and Togo and greater than 100 percent in Botswana, Ghana, Lesotho and Nigeria. Naturally, economies highly dependent on these financial flows can be hit hard when the flows suddenly decrease, and families can suddenly find themselves out of money.

Burkina Faso is a good example. Flows dropped drastically from US$ 187 million in 1988 to US$ 67 million in 1999, mainly due to the economic and political crisis in Côte d'Ivoire, where many Burkinabe work. As a result, the contribution of remittances to the GDP declined from 8.8 percent in 1980 to 2.6 percent in 1999. By 2003, remittances to Burkina Faso had slipped further to US$ 50 million.

The World Bank forecasts that by 2020 remittances to developing countries will reach US$ 200 billion annually. African countries cannot afford to be marginalised from this increasingly important source of financing. For starters, larger economies such as Nigeria should lead the way in developing policies to engage and use their citizens living abroad, says former US Ambassador to Nigeria Howard Jeter.

"There is a wealth of financial, technical and intellectual expertise in the diaspora," he says. "Africa needs to exploit these human and material resources to help tackle the challenges of development, environmental degradation, food security, energy supply, HIV/AIDS and equitable economic growth."

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