Remittance and Other External Financial Flows to Africa

In 2012, for the first time, remittances became the largest external financial source to Africa, ahead of Foreign Direct Investment (FDI) and Other Development Assistance (ODA). 

According to African Economic Outlook, (2013) more than 30million Africans (about 3% of its population) are living outside of their home country, remitting 11% of global remittances in 2012, compared to 8% in 2001. Nigeria receives between 30% and 60% of remittance in the African region(Orozco, 2003).The World Bank (2012) reported that the top recipients of officially recorded remittances for 2012 are India($70 billion), China ($66 billion), the Philippines and Mexico ($24 billion each), and Nigeria ($21 billion).

Remittances are mostly sent to Africa through informal channels; hand carried during visits to home countries and households, sent through transport companies or delivered through other informal channels largely due to limited access to and the high cost of formal financial (banking) services relative to average per capita incomes in African countries (Pendleton and others 2006; Bracking and Sachikonye 2008; Tevera and Chikanda 2009). According to International Fund for Agricultural Development (IFAD, 2009) large share of remittances from outside Africa is channeled through a few large international money transfer agencies, who in sole partnership with African banks and post offices.

Irving,Mohapatra, and Ratha (2010) found that almost 70% of central banks in Sub-Saharan Africa cited high costs as the most important factor inhibiting the use of formal remittance channels. Innovative options such as mobile money transfer are getting popular but adoption of these has been limited mostly to domestic money transfers, largely because of concerns about money laundering and terrorist financing. 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.

Remittance receiving households in Africa usually save remittance money in some type of financial institution rather than put it under the mattress. These steady stream of remittances receipt can be used as a factor in evaluating the credit worthiness of recipients for microloans, consumer loans, and small business loans (for example, to purchase agricultural equipment [Ratha, 2007]). Not only has a number of research found that bulk of remittances are used for consumption or investment in human capital (education, health, better nutrition), data from a multiple surveys and story-telling evidences indicate remittance has been found to provide initial capital to starting a business thereby stimulating entrepreneurship (De Haan et al., 2000;De Haan, 2000 Dermendzhieva, 2011; Cortes, 2007).

Identifying these poverty-eradicating and sustainable development potentials of remittance, World Bank recently initiated a global Knowledge Partnership on Migration and Development (KNOMAD), which is aimed at facilitating multidisciplinary debate and discussion on migration issues, developing policy options, and assisting sending and receiving countries implement pilot policies. While KNOMAD is on one hand, there is growing debate on how to use remittance in sustaning development in Africa through financial market linkages examples are the diaspora bond, collateral securitization, among others.

So what are your experiences with remittance as an African in diaspora? Do you feel the cost of sending money to Africa is too high? What are your suggestions on making remittance work for sustainable development in Africa? Do you have anything to share with our team on remittance in Africa in General?

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Nigeria in 2014: International Development assistant (or ODA) is not expected to increase but remittance will

Life was sweet when the leaders of the world's most powerful western economies pledged themselves to debt relief and aid to help poor countries in July 2005 when Britain hosted the G8 summit at Gleneagles. Growth was strong, asset prices were rising, and the financial crisis was two years away. Fast-forward to 2013, one thing was obvious when Britain chaired a similar G8 meeting at Lough Erne last summer: there will be no repeat of the commitment to double aid within five years. Money is tight. Most donour countries in the OECD are on their fiscal cliffs with characteristic high energy prices and compounded by their struggle to ensure financial solvency.

Since remittance exceeded foreign direct investment (FDI) and other development assistance (ODA) for the first time in 2012, remittance trend is seen to continue to play significant role in developing economies. In 2009, Nigeria received over $10 billion in remittances from citizens living in the diaspora and was ranked first among the top 10 remittance recipients in 2010 in Sub-Saharan Africa with average share of remittance to GDP of 10.4% between 2005-2011 (African Economic Outlook 2013; World Bank, 2011). The World Bank (2012) reported that the top recipients of officially recorded remittances for 2012 are India ($70 billion), China ($66 billion), the Philippines and Mexico ($24 billion each), and Nigeria ($21 billion). Although remittance has been identified to eradicate poverty among the recipient households (Chukwuone et al, 2012), little is known about its effects on job creation and employment especially for the young people. Remittance has its own unique way of addressing the challenges such as corruption that ODA and FDI face both in donour countries and recipient nations. Remittance is specific in use and carries efficient group/channel effects. It is expected that 2014 will be the year when social, fiscal and labour-market policy recommendations will be made to help in channelling the large amount of remittance in Nigeria for sustainable growth. This will fall in line with increasing international debate on how to reduce cost of remittance as well as help developing countries cope with falling ODAs.

Read the full article here: 10 Economic Highlights to look out for in Nigeria in 2014. Want to share you thoughts on the Nigerian Economy in 2014? You can drop your comment below or continue the discussion with on twitter Tweet to @seunoyeniran

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