Remittances to Africa hit USD40b

Thursday July 14, 2011

IN Africa, migration is a vital lifeline for the continent and African migrants play a big role in the development of their home countries.

Between 1990 and 2010 recorded remittances into Africa grew fourfold to reach nearly $40b and they are the continent’s largest source of foreign capital after foreign direct investments.

In Uganda the official estimates indicate that remittances amounting to $914m flowed into the country in 2010, $778m in 2009 and $723.52 m were received in 2008 up from $451.57m recorded in 2007 according to Bank of Uganda remittance reports.

The crowning expenditures of remittances sent home by African migrants were in investments such as land purchases, building a home and starting a business. In 2009, the major remittance expenditure items in Uganda were consumption and investment.

About 30 million Africans live outside their home countries, yet African governments have not realised the full economic benefits of the phenomenon, says a new report by the African Development Bank and the World Bank.

This is affirmed by the fact that it is still very expensive to send remittances to African countries.

The cost of sending money to Uganda varies from company to company, the exchange rate and the amount also regulates the transfer charges.

And at Xpress Money the rate for sh2.550,000- 3,400,000 is sh.73,000 although it is subject to change. In Tanzania for each $100 it costs sh5,000 of Tanzanian money according to Assasira Abre a Ugandan resident in Tanzania.

He says it is much more expensive to use money gram or Western Union. In UK it ranges between 10-20 pounds for any amount above 100pounds according to a Ugandan resident in UK.

However, post offices, savings and credit cooperatives, rural banks and microfinance institutions that have large branch networks can play an important role to expand access to remittances and financial services among the poor and in rural areas.

But they should avoid exclusive agreements with money transfer operators, which limits competition and tends to increase the cost of sending money.

There is also a need to assess the implications of telecom companies in Africa offering mobile money transfers and other financial services for banking stability and systemic risk.

Official remittance flows to Africa are significantly underestimated, with only about half of the countries in sub-Saharan Africa collecting and reporting remittance data with any regularity. According to the Bank of Uganda report in 2008 remittances .

In the report, “Leveraging Migration for Africa: Remittances, Skills and Investments” African Development Bank and the World Bank give evidence that suggests migration and remittances reduce poverty in the origin homes of the migrants.

Diasporas also provide capital, trade, knowledge and technology transfers. Kevin Cleaver, Associate Vice-President of IFAD said IFAD took interest in migration issues because migration is intimately related to rural poverty.

According to the 2008 Bank of Uganda Inward Remittance report remitters support economic activities though most households’ remittances in cash were used for consumption, in particular, for household expenses like food, clothing, rent and other utilities.

While 27.4% was spent on education , 41.1% spent on savings and investment with building works accounting for 21.2%. Household expenses accounted for 22.0% of the total.

The Bank of Uganda report affirms that findings on remittance use are supported by community perceptions on the impact of remittances which were generally perceived as having a positive impact on the general standard of living. Remittances were also linked to construction of better houses and improved access to better schools.

Ambassador Giandomenico Magliano, Director General for Globalization from the Italian Ministry of Foreign Affairs high -lighted the key role remittances can play in investment and entrepreneurship in the migrants’ home countries.

And upon an Italian proposal, the international community has adopted the goal of halving from 10% to 5% in five years the cost of transferring remittances. As a result this will encourage more Ugandans to send remittances through the formal channels as the cases of informal channels were evident together with hand-carrying by self which were outstanding mainly to the consideration of lack transaction charges according to the Bank of Uganda report in 2008.

Dilip Ratha, main author of the report and lead economist at the World Bank said that high costs charged on the remittances encourage the use of informal channels and are an unnecessary burden for African migrants and remittance recipients.

He said African governments need to strengthen ties between diasporas and home countries, protect migrants and expand competition in remittance markets, otherwise, the potential of migration for Africa remains largely untapped.

Stephen Ogongo Ongong’a, a migrant and the editor of Africa News, also said that it is important for Africans living abroad to be sending money home with a clear purpose.

Apart from the money they send for basic family needs, they should also be given the opportunity to identify viable investment projects to channel part of that money.

One innovation worth considering is diaspora bonds which are sold by governments or private companies to nationals living abroad. These bonds have already been successfully used to tap into assets of Israeli and Indian citizens living abroad.

According to Ratha, sub-Saharan African countries could potentially raise US$5 billion to US$10 billion a year in diaspora bonds. Countries with large diasporas in high-income countries that could potentially issue these bonds include Ethiopia, Ghana, Kenya, Liberia, Nigeria, Senegal, Uganda and Zambia in sub-Saharan Africa; and Egypt, Morocco and Tunisia in North Africa.

By Roselynn Karatsi : The New Vision Newspaper