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AFRICA received an estimated $63 billion in remittances in 2015, data from the World Bank shows, though Nigeria and Egypt together account for nearly two-thirds (63.4%) of this total.
Remittances make up a significant source of financing on the continent, supporting families and driving investment, though the volume of flows has slowed over the past five years as global economic growth – particularly in advanced economies – slackens.
The most common investment that families make with remittance money is education. One study by the World Bank showed that households in Ghana receiving remittance marginally reduced their spending on food by at least 14% (meaning they had more disposable income in hand), and increased the margin on education by as much as 33%.
In Nigeria and Kenya, more than half of total remittance spending is invested in homebuilding, land purchases and farm improvements.
Some African countries are extremely dependent on remittances, which form 20% of the GDP in Liberia, Lesotho and The Gambia.
But sub-Saharan Africa also has the highest costs of sending remittances home, averaging 11.5% to send $200, against an average global rate of 8%, and double the cost of sending money to South Asia.
The high charges are partly a result of stronger anti-money laundering and anti-terror financing regulations in the global financial system – banks are anxious to avoid abetting crime and terror.
But problems are compounded by the concentration of market power of banks, and flawed financial regulation.
It is a context where banks are favoured over alternative remittance payment options, while bank networks are not well adapted to process low-value retail flows, such as the $50 or $100 that a typical worker would send back home.
Moreover, ‘exclusivity agreements’ between money transfer companies, their agents and banks further restrict competition and drive prices up.
The most expensive path of sending money was from South Africa to Zambia, Malawi, Botswana and Mozambique.
This is an unnecessarily high rate that effectively constitutes a tax on the poorest continent. Given that some big remittance players are not African, this tax does not even stay within the region, argues Nikos Passas in this paper, Professor of Criminology and Criminal Justice at Northeastern University who specialises in the study of corruption, illicit financial flows, and international crimes.
“Even the 5% target recently set by the G8 should be considered too high, given the current technologies and overall financial sector capacity,” according to Passas. “The negative effects are large and consequential.”