A new report that was co-produced by the UN’s Economic Commission for Africa (ECA) and the African Union Commission (AUC) has projected that remittances to Africa in 2021 would decline slightly by 5.4% to $41 billion, down from $44 billion in 2020. This is due to the effects of COVID-19 pandemic.
The report, which was titled “African regional review of implementation of the Global Compact for Safe, Orderly and Regular Migration“, also pointed out that the costs associated with remitting money to Africa are among the highest in the world. Until very recently, the average transaction costs for sending $200 to places like Nigeria and Ghana can be equivalent to 8.9% of the amount being sent. This shows that Africa is still far from achieving the 3% remittance cost target that was set out in Sustainable Development Goal 10.
It should however be noted that some African countries have begun taking action towards reducing the cost of remitting funds to the continent. A number of African countries even offer diaspora bonds to investors and have relaxed their foreign exchange controls, all in a bid to allow for electronic and mobile money transfers albeit at reduced costs.
“It should be noted, in that regard, that the use of digital money transfer platforms reduces transfer fees in Africa by an average of 7 per cent. Private financial institutions also offer incentives to encourage members of diaspora communities to use their services, including low transaction fees for remittances, and facilitate diaspora-initiated projects, especially in the real estate sector. These measures all promote the financial inclusion of migrants and their families,” said part of the report.
Meanwhile, the report recommends that African countries should support African migrants and their families by adopting laws and regulations that facilitate easier remittances. This could be done by encouraging competition among banks and other remittance handling firms. The competition would lead to a reduction in remittance cost.
Remittances are estimated to constitute approximately 65 per cent of the income of some receiving countries. For 25 African countries, all of which have large diaspora populations, remittances are the primary source of national income.