Africa records strong recovery in remittances despite high cost
Wednesday May 25 2022
A sign of international money transfer system MoneyGram. A recent report shows that Nigeria dominates Africa in remittance receipts. PHOTO | AFP
Remittances to sub-Saharan Africa grew 14 percent to $49 billion in 2021, the strongest gain since 2018, even as the continent remained the costliest developing region to send money.
According to the latest World Bank Migration and Development Brief dated May 2022, aggregate regional remittance costs averaged 7.8 percent between October and December last year.
The average cost of remitting $200 from countries in the least expensive corridors amounted to 3.4 percent while costs for the most expensive corridors registered 31.5 percent during the same period, an increase of 12.3 percent from the year earlier.
The report titled “A war in Pandemic: Implications of the Ukraine Crisis and Covid-19 on Global Governance of Migration and Remittance Flows,” notes that though intraregional migrants in Africa comprise more than 70 percent of all international migration, remittance costs are high due to the small quantities of formal flows and use of black-market exchange rates.
The fee for sending $200 in remittances from Tanzania to neighbouring Uganda, for example, would cost 29.7 percent of the transaction amount.
The report, however, shows the continent recorded strong growth in remittances in 2021, largely as a result of a firm pace of economic activity in Europe and the US, although facing rising headwinds from inflation tied to distortions in supply chains and surging commodity prices.
In 2020, remittances to the region fell by eight percent due to the Covid-19 pandemic.
“As Covid-19 incidence eased in the industrial economies, job prospects improved, allowing African migrants to supplement remittances to home countries that continued to experience sobering consequences of the virus,” says the report.
“A major factor in improving 2021 out-turns was a restoration of recorded inflows to Nigeria, which had plummeted by 27 percent in 2020 due to increased use of informal channels.”
The surge in flows to Nigeria by 11.2 percent to $19.2 billion in 2021 accounted for nearly one-third of the overall $6.3 billion increase in remittances to Africa.
Nigeria dominates the region in remittance receipts, having historically accounted for a half of sub-Sahara Africa inflows followed by Ghana. South Sudan and the Democratic Republic of Congo also saw upturns in flows in the period.
Extra-ordinary increase
According to the report, a strong motivation by migrants to assist families in home countries under pandemic conditions underpinned these extraordinary increases.
Kenya benefitted from a 20 percent growth in remittance receipts, with continued momentum in the first quarter of 2022 nearing 25 percent.
Tanzania’s receipts grew by 60 percent and the Gambia enjoyed a 30 percent growth in remittances grounded in a new government and new currency.
Mozambique’s migrant workforce finally responded with some force (a two-thirds increase in flows to $570 million) to support the hard-hit residents of Cabo Delgado, amid an insurgency against mega liquefied natural gas projects in the region.
The report notes that there is uncertainty for remittances to Africa for 2022–23 and risks in the outlook are exceptionally high against the background of global conditions affected by the Russian invasion of Ukraine.
A key staple commodity for the region – wheat– gained 24 percent over the course of 2021, and an additional 22 percent since the February invasion.
Higher oil prices are expected to dominate external accounts for the 36 net oil-importing countries in the region, and expectations of deeper current account deficits and worsening debt positions are widespread.
Medium-term risk
Africa stands as the developing region most exposed to the fallout from the Ukraine invasion, as indirect effects build over time.
Most countries are now facing a steep decline in trade, which is increasing deficits and debt, boosting inflation, and cutting into real incomes and growth.
The continent is highly exposed to price hikes in wheat, maize, edible oils and fertilizers; the latter could impact farmers heading into the new agricultural season.
Sub-Saharan Africa imports 85 percent of its wheat supply, almost one-third (28 percent) of which comes from Ukraine and Russia.