Remittance flows to Sub Saharan African countries will drop by 23.1% from $48 billion in 2019 to $37 billion in 2020 in the wake of the Covid-19 economic crisis, according to the World Bank.
Globally, the top remittance recipients’ countries, last year were, India ($79 bn), China ($67 bn), Mexico ($36 bn), the Philippines ($34 bn), and Egypt ($26.7 bn) among other countries.
In COMESA region, the leading recipients of remittances were Egypt (US$ 26,791 million), Kenya (US$ 2,819 million), Tunisia (US$ 1,912 million), DR Congo (US 1,823 million) and Zimbabwe (US$ 1,730).
In terms of contribution of remittances to GDP, Zimbabwe led with 13.5%, Comoros (11.5%) and Egypt (8.2%).
Further, the World Bank estimates that foreign direct investment will drop by around 35% due to travel restrictions, disruption of international trade and decline in the stock prices of multinationals. Thus, diaspora remittances will remain crucial to many countries in the region.
COMESA Director of Trade and Customs Dr Christopher Onyango observes: “Diaspora remittances are a key source of investments and enabler of economic growth and sustainable development. They have multiplier effects in the economy through savings, investments, fiscal and debt sustainability.”
In his report on the impact of COVID-19 on diaspora remittances, he notes that affluent countries such as the USA, France, United Kingdom, Italy and China, which account for up to a quarter of all funds remitted to African countries are among the worst hit by the pandemic.
“Migrants in the diaspora have lost jobs and taken pay-cuts amidst the corona virus outbreak and subsequent lockdown leading to the drastic fall in remittances. Thus, many countries have suffered a double blow more so those that remittances constitute a significant share of the GDPs,” he says.
Further, the COVID-19 pandemic has tremendously constrained mobility and travelling across countries, and this may reverse the gains already made in promoting greater openness and flexibility in migration. This is because a range of professionals and semi-skilled workers are needed to provide various services.
Dr Onyango adds: “About 13% of essential workers, including ICT technicians, teachers, health professionals, sports men and women, cleaners, drivers and other general workers in Europe are immigrants. Stringent immigration policies are therefore likely to close out immigrant workers and therefore reduce diaspora remittances.”
The other challenge has been the high cost of sending remittances. According to the World Bank’s Remittance Prices Worldwide database, the global average cost of sending $200 stood at around 7% in the first quarter of 2019. No wonder the reduction of remittance costs to 3% by 2030 is a global target under the SDGs.
For many countries in Africa and the small islands in the Pacific, the costs are above 10% thus encouraging the use of informal channels or even illegal transactions, including money laundering. In addition, actual data is not captured in most cases leading to under estimations.
The report identified banks in Africa as the most expensive remittance channels, charging an average fee of 11% in the first quarter of 2019. Post offices were the next most expensive, at over 7%. Remittance fees tend to include a premium where national post offices have an exclusive partnership with a money transfer operator.
Within Africa and by extension COMESA, Dr Onyango says the commitments to remove restrictions on the movement of persons across the region specially professionals and other essential workers is now paramount. Restrictions hinder productivity and growth of both migrant source and destination countries and subsequently the associated remittances.
Going forward, the Director says Member States needs to undertake financial regulatory reforms to streamline and effectively reduce the costs of sending remittances. In addition, Member States should not only fully implement the protocols on free movement persons, labour and services and that of elimination of visa requirements, but also develop specific rules and regulations to guide and harness remittances as a critical source economic growth and development.
At the global level, he notes, there is need for sustained migration reforms considering the role played by migrants during the pandemic, with many of them being in the front line. Even more importantly, such reforms will enhance peaceful coexistence of humanity to foster global economic development.