. High cost stalls achieving SDG 10 target
The Economic Commission for Africa (ECA), and African Union Commission (AUC), have projected remittances to African countries to fall by 5.4 per cent from $44 billion in 2020 to $41 billion in 2021, due to the effects of COVID-19 pandemic, according to Continental Migration Report 2021.
This was disclosed in a report titled, “African regional review of implementation of the Global Compact for Safe, Orderly and Regular Migration,” recently released by ECA in partnership with AUC.
It builds from four sub-regional reports compiled by AUC and a summary from stakeholder consultations at the just-concluded 2021 African regional review meeting on the Global Compact for migration held in Morocco.
Although the COVID-19 pandemic was expected to cause a decrease in remittances to Africa in 2020, the reports shows that by October 2020 remittances to Africa had reached approximately $78.4 billion, constituting 11.7 per cent of global remittances.
With this, remittances have demonstrated greater resilience and reliability as a source of capital in Africa than foreign direct investment flows.
Even while diaspora remittances could be maximised to boost economic recovery from COVID-19, the report revealed that the costs associated with sending remittances to Africa are some of the highest in the world.
Until very recently, average transaction costs were equivalent to 8.9 per cent of the amount being sent for a remittance payment of $200.
For the cost of sending money, the report noted that Africa is still far from achieving the three per cent target set out in Sustainable Development Goal (SDG) 10.
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.
The Addis Ababa Action Agenda of the Third International Conference on Financing for Development and Sustainable Development Goal indicator 10(c) provides that countries should, by 2030, reduce to less than three per cent, the transaction costs of migrant remittances, and eliminate remittance corridors with costs higher than five per cent.
Remittances are estimated to constitute approximately 65 per cent of the income of some receiving countries and senders spend an estimated 15 per cent of their income on remittances.
For 25 African countries, all of which have large diaspora populations, remittances are the primary source of national income.
In response, many African countries have taken action to lower the costs of remittance transfers. Some countries also offer diaspora bonds to investors and have relaxed foreign exchange controls to allow for electronic and mobile money transfers at reduced costs.
“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.”
The report recommended that governments across the world should take effective action to facilitate and boost remittances to support the fight against COVID-19 and ultimately building a more sustainable post-pandemic world.
It also urged member states to support migrants and their families through the adoption of laws and regulations to facilitate the sending and receiving of remittances, including fostering competition among banks and other remittance handling agencies with a view to establishing low-cost transfer mechanisms.
The report also called on African countries to reduce the transfer costs associated with remittance payments, inter alia, by making more extensive use of digital transfer solutions, and by streamlining the regulatory constraints associated with international money transfers.
It advised African States to engage with destination countries to identify ways to enhance the provision of basic services to migrants in those countries.
Also, to achieve the Global Compact objectives 1, 3, 7, 17 and 23, it called on member states to implement steps proposed in the context of regional economic community-led dialogues on migration; and consider the increasingly important role played by diaspora communities in fostering development, including through remittance payments, skills development initiatives and the adoption of emerging technologies.
“ECA projected that remittance inflows to Africa could decline by 21 per cent in 2020, implying $18 billion less will go to the people who rely on that money.
“It is therefore critical to preserve this essential lifeline. As the world enters an economic downturn, remittance flows will be more important than ever for the poorest and most vulnerable people, especially those without access to economic and social safety nets,” the report added.