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Africa: Remittances Landscape sent by 30 Million Emigrants

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By I Love Black People by BillMari
First published – Apr 3, 2019

Remittances are the central and most tangible link between migration and development. After foreign direct investment (FDI), remittances are the continent’s largest source of foreign inflows. Immigrants from Africa today number approximately 30 million adults, who send around $40 billion USD annually to their families and local communities back home. Migrant remittances contribute to international reserves, help finance imports, and improve the current account position of recipient countries.

Remitted funds are associated with reductions in poverty, improved health and education outcomes, and increased business investments. Although the limited reach of intermediaries in rural areas, lack of effective competition, and inadequate financial and regulatory infrastructure contribute to high remittance costs and the prevalence of informal channels (especially for intra-African remittances), the rapid adoption of innovative money transfer and branchless banking technologies are increasing access to remittances and broader financial services for the poor.

At the macro level, remittances are a large and stable source of external finance for African countries that improve their creditworthiness and access to capital. FDI, portfolio equity, and debt flows; in some countries, they are equal in size to official aid. Remittances tend to be more stable than other sources of foreign exchange, and they are often countercyclical, helping sustain consumption and investment during downturns and performing the role of a shock absorber.

The above beneficial effects of remittances improve sovereign creditworthiness and the external debt sustainability of African countries. Securitization of future remittance flows can increase the access of African banks and firms to international capital markets; it can also be used to fund longer-term development projects, such as infrastructure and low-income housing. Using remittances for such purposes should be accompanied by prudential debt management and efforts to ensure medium-term sustainability of external debt.

Remittance receipts are associated with reductions in poverty, increased household resources devoted to investment, and improved health and education outcomes. Migrant remittances help smooth household consumption and act as a form of insurance for households facing shocks to their income and livelihood caused by drought, famine, and other natural disasters. Household surveys in Africa show that remittance-receiving households have greater access to secondary and tertiary education, health services, information and communication technology, and banking than households that do not receive remittances.

Sub-Saharan Africa has the highest remittance costs among developing regions and the largest share of informal and unrecorded remittances among developing regions. These costs represent an unnecessary burden on African migrants, reducing the amounts sent and their development impact. A large share of international remittances to Africa is channeled through a few large international money transfer agencies

The remittance landscape in Africa is rapidly changing with the introduction of innovative, mobile money transfer and branchless banking technologies. Although adoption of these technologies has been limited largely to domestic money transfers (in part because of concerns about money laundering and terrorist financing related to cross-border remittances), these technologies have the potential to vastly improve access to both remittances and broader financial services, including low-cost savings and credit products, for African migrants and remittance recipients in African countries.

African countries can potentially use future remittances (and other future receivables) as collateral to raise financing from international capital markets for financing development projects.