Africans living abroad pay two times more than people from other continents to send money home, costing them $1.8 billion annually.
The money is enough to put 14 million children into schools or to provide safe water for 21 million people.
A new report from the Overseas Development Institute (ODI) shows that on average Africans in the diaspora pay 12 per cent in fees for transfers of $200, almost double the global average. (See Infographic)
“This remittance super tax is diverting resources that families need to invest in education, health and a better future. Africans living abroad make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and Internet transfers,” ODI director Kevin Watkins said.
The report to be launched Wednesday says there are no signs of charges falling, despite pledges by the G8 and the G20 to reduce the cost of remittances to five per cent by this year.
“Diaspora organisations would like to engage governments and regulators to find creative solutions to unlock the true potential of remittances to the region,” said Siddo Deva of Comic Relief which funded the study.
The report found that the top 10 remittance transfer charges were in sub-Saharan African countries with Ghanaians sending money, for example, to Nigeria paying as much as 39 per cent in fees.
It attributed the high charges to lack of competition with two money transfer operators— Western Union and MoneyGram—controlling almost two thirds of the remittance market in Africa. The companies operate ‘exclusivity arrangements’ with agents, which restricts market entry.
Financial regulations also raised charges by giving banks an effective monopoly on remittance payments.
ODI researchers estimate that operations involving Western Union and MoneyGram, account for around a third — $586 million —of the loss associated with high remittance charges each year.
Western Union charges 9.4 per cent on average on transfers to the region, while MoneyGram charges 10.4 per cent. Remittances to Africa reached $32 billion or two per cent of the domestic economy last year and are projected to grow by more than eight per cent annually to 2016.
This income is less volatile than foreign direct investments and other private capital flows and directly reaches households, cushioning the impact of external economic shocks.
In Somalia, eight in 10 new businesses are funded by remittances while in Ghana, the transfers have halved the likelihood of households falling into poverty and improved school attendance. In Ethiopia, remittances have helped families cope with food shortages without having to sell productive assets.
The report calls for investigation into whether market concentration artificially raising prices and for greater transparency in provision of information on foreign currency conversion.
It also want exclusivity agreements between money transfer operators, banks and agents outlawed to allow post offices and micro-finance institutions to compete with them.