By Binta Terrier
The long standing problems with remittances to African countries and the need to address the factors that currently impede the full benefits of remittances from materializing must be the focus of African governments immediately.
I will begin with a synopsis of the potential benefits of remittances to Africa, in terms of reducing poverty and contributing to overall economic development of the region. Then, elaborate on some of the factors that are adversely affecting the flow of remittances to Africa. This will provide a useful backdrop for discerning the policy priorities for the Africa region. Before concluding, I will share with you my humble thoughts on what could be done for Africa to reap the full benefits of the economic power of its citizens in the Diaspora.
I. THE ROLE THAT REMITTANCES PLAY IN AFRICAN COUNTRIES
Remittances are very important for African nations, both at the national level and for individual households.
At the national level, remittances have increased foreign exchange revenues and contributed to improving the balance of payment positions of recipient countries. Remittances have also proved to be more stable and resilient than private capital that seeks yield and return and which is affected by market sentiment.
At the household level, remittances have become the financial life blood of many poor households, helping to stabilize irregular incomes and reducing poverty. Households in Africa use remittances for many purposes, including paying for education and other individual projects.
Therefore, remittances can contribute to the development of human and social capital and to steady economic growth in Africa.
II. SO WHY HAS AFRICA NOT REALIZED THE FULL BENEFITS OF ITS REMITTANCES?
While migrant remittances offer sizable benefits to Africa, some of the current policies create barriers that minimize their contribution to national development.
Restrictive licensing of money transfer services, for example, restricts competition and drives up costs.
One would have expected that with the spread of mobile banking, online transfers and other technological innovations, the fees charged by middlemen would have fallen. Unfortunately in Sub-Saharan Africa, the fees remain stubbornly high. The “Send Money Africa Data Bases” continues to show that the cost of sending money to Africa is the highest in the World by a staggering margin.
These high fees are depriving families of hard-earned money!!! One explanation for the high fees is the lack of competition and transparency among the money transfer providers.
• Some studies estimate that Western Union and Money Gram, the two largest money transmitters, have a combined market share of 65 percent or more of the remittance market in most of Sub-Saharan countries. In some countries they are reported to account for over 90 percent of the market.
• In many African countries, Western Union and Money Gram effectively operate as local monopolies. This dominance is reported to be reinforced by tacit restrictions imposed on companies that can offer remittance services. Lack of competition has translated into higher transfer costs. While some of the African countries have started to scrutinize the agreements more closely by adopting rules that prohibit exclusivity, enforcement remains weak.
Another factor is the opacity of the currency conversion spread that the firms charge, which studies suggest can be one third or more of their total fees. Descriptions of how these spreads are calculated remain unclear.
More recently, Global Regulatory Initiatives have inadvertently affected remittances to Africa. We have seen major banks in the US, UK and Australia end remittance services to some of the African countries (Somalia and others) because of the fear of unwittingly facilitating money laundering and terrorist financing. The withdrawal of these operations reduces competition in the African remittance market and could drive fees even higher, thereby creating shadow markets for remittances.
III. SO WHAT SHOULD BE THE WAY FORWARD?
Remittance levels and channels are a function of migration and money transfer services— and, more broadly of the financial infrastructure through which remittances flow.
While emigration levels are endogenously determined and therefore outside African governments control, we can and must address the obstacles related to the operating environment and the financial infrastructure through which the remittances are made.
Removing the obstacles to remittances would boost the volume of remittance flows and raise their beneficial impact on Africa’s development. Evidently, the factors impending remittances to Africa are multifaceted and there is no one-size-fits-all policy. There is also no silver bullet that will immediately solve the problems. Many countries and development partners as well have drawn attention to the high fees levied on remittances to African countries, and yet there has only been a marginal decline in these fees. Therefore, there is a need to:
1. Build on past efforts and advance this agenda to its fruitful conclusion, which is to bring down the fees to levels comparable to other regions.
2. Review: (a) policies and regulations that hinder the flow of remittances through the formal channels, policies that impede competition and increase the costs of remittances to Africa, and (b) practices of Money Transfer Operators (MTO) that reduce transparency.
3. Development of better payments systems and infrastructures.
4. Emergence of other types of money transfer agencies to increase competition.
5. Support the development of technologies that enable money transfer agencies to the rural areas at affordable costs.
6. Improve the governance and risk management of remittance service providers.
IV. TO CONCLUDE
African countries are not reaping the full benefits of remittances, even though remittances are an important component of efforts to eradicate poverty on the continent. The excessive cost of sending remittances drains money from the poorest.
There is a contradiction in advocating for aid while at the same time maintaining policies that take away hard-earned income from poor families.
NGOs can only bring to light the plight of citizens but the power to act is with the African governments. Therefore, while collaborating with our development partners, African governments will need to develop strategies that will increase competition and reduce fees, and facilitate the transmission of remittances from the Diaspora.
In implementing global regulatory initiatives, African governments should not lose sight of the humanitarian aspects of those policies on remittances. They will need to ensure that the welfare of their citizens is well considered in global policies. As architects of their citizens’ destinies, African governments cannot afford to sit on the sidelines.
The African Diaspora hopes to see Africa’s policy-makers act in earnest and address the problems that prevent remittances from being as beneficial as they should be.