The dizzying 21% drop in one year in remittances to the continent worries the United Nations Economic Commission for Africa (ECA). In a report, “Preserving remittances in the era of Covid-19”, co-authored with the organization One, which fights against poverty, the ECA recalls that these remittances “have become the main financial influx in developing countries, exceeding foreign aid, private capital flows and foreign direct investment (FDI) ”.
Over the past decade, remittances to Africa have doubled to reach $ 85 billion in 2019. A 21% drop in remittances means $ 18 billion will not reach the families who depend on them. This money often allows them to cover their basic needs: purchases of food products, health, education and housing expenses.
On the scale of an African country, this windfall is far from negligible. It represents more than 5% of GDP in 15 African countries, 10.5% for Senegal and 34.4% for South Sudan. This money also represents foreign currency reserves, which are welcome for countries.
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Diaspora and migrants
The situation of migrants in the most affected countries explains this significant drop. They are victims, often on the front line, of the economic crisis which is hitting the vast majority of the countries where they are established. Italy, France, Spain, United Kingdom, United States, the pandemic is wreaking economic havoc, causing job losses, decreases in income, short-time working… “For the senders and recipients of remittances, the Covid-19 has resulted in job losses and lower income, ”the report notes bitterly.
There is also an invisible part of the iceberg. Transfers made informally to Africa would correspond to a figure greater than or equal to official transfers. Amounts that can be transmitted in this way, for example, during a trip, or given to a trusted person. The pandemic has ground planes, reduced travel and, indeed, money transfers. These funds channeled through informal channels cannot be traced or accounted for at the macroeconomic level and it is very difficult to estimate the amounts involved.
Elie Nkamgeu, president of the Efficience Club, recalls in the Radio France International program, 7 billion neighbors, that the diaspora is also made up of a third generation of “Afro-Europeans” who were born in Europe, but who keep a link with the continent. Better trained, more integrated and with greater purchasing power, they turn more easily to development and business creation projects.
In any case, both migrants and members of the diaspora should be considered as “development actors”. Thanks to their regular remittances, they finance individual and collective projects, support families.
“Beyond the loss of income, millions of senders also found it difficult to send money to loved ones during the lockdown period,” the report explains. Banks, post offices, small affiliated businesses representing operators, Ria, Western Union, MoneyGram, almost all physical operators closed during containment, further exacerbating the drop in transfers.
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High transfer costs
Senders pay shipping costs which are far from negligible. “Curiously, it is the banks that charge the most for sending $ 200, a fee of around 11% of the amount sent,” the report said. Globally, in 2017, shippers paid approximately $ 30 billion in fees. For more than ten years, progress has been made, in particular with the arrival of new operators, and in particular the superb success of Safaricom which was the first to set up on a large scale, the transfer of money via the mobile.
“Africa is the region where the costs of receiving a remittance are the highest, with an average cost of 8% (against 5% for South Asia)”, notes the ECA. Within the continent, the fees imposed remain prohibitive, around 14%! They are particularly high from Angola to Namibia, from Tanzania to Rwanda and from Nigeria to Togo. “As part of the African Continental Free Trade Area, African countries should significantly reduce the cost of sending cash to the continent in order to help African economies to rebuild better,” advocates the ECA.
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This report reiterates a global call “to stimulate remittances”, initially launched by the United Kingdom and Switzerland and supported, among others, by the World Bank, UNDP and the International Chamber of Commerce. This involves a clear reduction in bank charges, or even their cancellation. “The Group of Twenty (G20) finance ministers should change their national remittance regimes, as well as related banking regulations, to bring the cost of remittances down to near zero until the end. of the pandemic. They must then ensure that the cost of remittances does not exceed 3%, as agreed in the goal of sustainable development 10 ”, recommends the report.
The drop in remittances will severely impact the poorest who depend on this source of income to survive. It is therefore essential to preserve this lifeline for Africa. “As the world enters an incomparable economic recession, remittances will be more important than ever for the poorest and most vulnerable people, especially those without access to economic and social safety nets. Governments around the world will need to take effective measures to facilitate and stimulate remittances in order to support the fight against Covid-19 and, ultimately, to build a more sustainable post-pandemic world, ”said Stephen Karingi, director of the regional integration and trade division of the ECA.
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