Migrant Remittances in Africa:
A Regional Perspective
Prepared for the
International Conference on Migrant Remittances
London, UK
9-10 October 2003
by Cerstin Sander
Bannock Consulting
1 October 2003
______
The author would like to acknowledge the valuable comments received from the World Bank reviewers of the original study on which this paper is based: Abayomi A. Alawode, Leora Klapper, and Samuel Munzele Maimbo. Any errors or omissions, however, remain the sole responsibility of the author.
Author Bio:
Cerstin Sander is a Senior Consultant in small enterprise and microfinance with Bannock Consulting, London, UK. She holds a Master of Arts degree from Queen’s University, Canada, in Comparative Development and International Relations (1993).
Cerstin has spent the last 13 years working in international development as a member of staff of funding agencies, including the International Development Research Centre (IDRC), and as a consultant. Before joining Bannock Consulting in March 2003 she was based in Uganda as the regional private sector development advisor to the Austrian Development Cooperation responsible for programmes in Tanzania and Uganda.
Cerstin has worked on assignments in Africa, Asia, the Caribbean, Latin America and parts of the Former Soviet Union in the areas of micro and small enterprise finance and development, institutional assessment, performance and evaluation, and socio-economic and fiscal impact. She has also conducted research such as on the SME financing gap and has more recently worked extensively on migrant remittances and money transfer.
Cerstin Sander
Bannock Consulting
47 Marylebone Lane
London, UK W1U 2LD
cerstin_sander_bannock.co.uk
+44.20.7535.0240 (phone)
+44.20.7535.0201 (fax)
Abstract
This paper profiles the relevance of migrant remittances for Africa and identifies obstacles which limit the potential for greater developmental contributions. While interest in remittances has been growing, Africa has received the least attention and Sub-Saharan Africa in particular remains largely neglected. This is in part due to the relatively low share of global remittance flows to the continent. The intention is to contribute to a better knowledge base and to inform stakeholder discussions on the role of remittances and what, if any, policy or other interventions might be appropriate.
The analysis shows that remittances to Africa are substantial and heavily underreported. As a result, developmental contributions of remittances, such as to human capital and to the balance of payments of recipient countries, though already substantial as documented, are underestimated. The analysis explores factors in the financial infrastructure which contribute to this by hindering the flow of remittances through formal channels as well as limiting their investment.
indexing key words:
migrant remittances, financial systems, financial services, developmental effects, Africa, Sub-Saharan Africa
Introduction
Until recently, migrant remittances have stood in the shadows of attention given to other financial flows to developing countries -- especially Foreign Direct Investments (FDI) and Official Development Assistance (ODA).[1] This is changing as:
- remittance flows have grown rapidly and become the second largest external flow to developing countries ahead of ODA and behind FDI;[2]
- migration from developing countries continues to increase;[3] and
- concerns about money laundering and terrorist financing have been heightened following the attacks in the United States in September 2001.
In the context of development assistance, interest has grown concomitantly and tends to focus on four aspects: migration policies and effects; remittances as a key financial flow to developing countries; the quality of the related financial infrastructure, particularly of money transfer systems for remittances; and the developmental contributions of remittances.[4]
With this new interest in remittances, Africa has to date received the least attention and especially Sub-Saharan Africa remains largely neglected.[5] This may in part be explained by the relatively low share of 15% of migrant remittances to developing countries flowing to the African continent and Sub-Saharan Africa accounting for only 5% of the total flow. In part this may also be due to the relatively fewer overseas migrants as well as the greater dispersion of African emigrants, especially of Sub-Saharan migrants, compared to migrants of other developing regions.
As this paper highlights, however, remittances to Africa are an important financial flow for the region and one with significant developmental effects. Moreover, actual flows are substantially higher than official data indicates as much remains unrecorded or unreported. This is partly a result of weak financial systems and services in much of Africa. Combined with financial policy and regulatory issues, this environment creates obstacles for the efficient transfer of remittances through formal money transfer services and also limits the potential of remittances for greater developmental contributions.
Reviewing first remittance volumes and flows for Africa compared to developing countries overall, the paper then highlights migration patterns and trends as the ‘driver’ behind remittances. This constitutes the backdrop to looking at developmental aspects of remittances, such as who receives remittances, how they are used, and what are their macroeconomic effects. As money transfer services are a primary means for sending remittances, a summary analysis of remittance channels and of user preferences among the available financial services for money transfers follows. This is complemented by an assessment of related financial sector policies and regulations regarding their effects both on the accessibility of money transfer services as well as on the availability of options for investing remittance monies. The analysis identifies obstacles for remittance flows and their potential developmental contributions in the financial infrastructure and its regulatory framework and concludes with research and policy recommendations.
Remittance Flows to Africa
Remittance flows to Africa are relatively low compared to flows to other developing regions but are also heavily underreported. This is partly due to the high level of data gaps for African countries in international remittance statistics. Another factor is the high prevalence of informal remittance flows in much of Africa. Two aspects contribute to this: the strong intraregional migration and the weak financial infrastructure. In addition, there is an important yet unreported flow of urban to rural remittances in Africa which is not required to be recorded in any system.
Developing countries received US$ 80 billion in migrant remittances in 2002 according to officially recorded flows.[6] Africa received about US$ 12 billion and accounted for circa 15% of these flows. Split regionally, Sub-Saharan Africa received US$ 4 billion or 5% whereas the Middle East and North Africa combined received US$ 14 billion or 18%; North Africa alone accounted for about 10%. (Figure 1[7])
Whereas remittances to developing countries have more than doubled over the last decade and are up from 33.1 billion in 1991, remittances to Africa have grown little and, as a result, have declined in relative share. Total remittance receipts to Africa over the past decade peaked in 1992 (US$ 10.7 billion) and were at their lowest in 2000 (US$ 7.8 billion).[8] For Sub-Saharan Africa the share of total remittances to developing countries has dropped from some 8% in 1980 to 5% in 2002, reflecting primarily the growth in flows to other regions rather than a reduction in its own flows.[9] (Figure 1)
Figure 1: Remittances to Developing Countries & to Africa
The strong remittance flow to Northern Africa has been quite consistent and reflects patterns of international migration to Europe and the Middle East. Of the total remittances to Africa over the past decade, close to three quarters were received in Northern Africa (72%), about one fifth in East Africa (13%), and less than one tenth each in Southern and West Africa (7 and 5%, respectively). Central Africa records less than one percentage point in remittances. (Figure 2)
These are the officially recorded flows captured in the annual Balance of Payment Yearbooks of the International Monetary Fund.[10] Estimates of remittance flows which include informal and other unrecorded transfers to developing countries are quoted as high as US$ 200 billion which increases the official records by a factor of about 2.5. Also unrecorded but typically not included in such estimates are domestic remittance flows which are typical for many parts of Africa with high rural to urban or seasonal migration. While domestic remittance transactions are typically substantially lower in value than international transfers, their cumulative value is considered to be substantial though rarely quantified beyond ‘snap-shot’ case studies.
For Africa underreporting and unrecorded flows are substantial and an adjustment for total flows would be much higher than the global estimated factor of 2.5. For Sub-Saharan Africa, for instance, IMF remittance data is only available for about one third of the countries. In addition, the relatively weak or sometimes lacking financial systems and the high proportion of intraregional migration suggest that informal remittances are a substantial share of total remittances throughout much of Africa. For Sudan, for instance, informal remittances were estimated to account for 85% of total remittance receipts.[11]
Looking beyond the regional breakdown, a few countries dominate in either receiving or sending flows of remittances. These are in part a reflection of migration patterns as the main underlying factor for remittances. In 2001, the top five remittance receiving countries in Africa were Morocco, Egypt, Tunisia, Sudan, and Uganda - in this order. Morocco and Egypt were the only African countries among the global top twenty developing countries receiving remittances and ranked in positions four and five, respectively.[12] In Sub-Saharan Africa the single largest receiver was Nigeria,[13] followed by Lesotho, Sudan, Senegal and Mauritius. (Figure 3)
Migration & Remittances in Africa
Remittances are a phenomenon inherently linked to migration. Understanding migration patterns and migrants’ choices in sending remittances and in their use is important in devising policies that enable remittance flows and do not hinder their developmental contributions. As African migration is on the rise, remittances are bound to remain a substantial and important flow. Though one might expect also a growing flow, this has not been observed in the official remittance data. Reasons for this could include that the growth may have occurred primarily in informal or other unrecorded remittances.
Though migration and remittances are inherently linked, their patterns do not typically mirror each other readily nor do their respective flows correlate statistically.[14] Some of the top remittance receiving and sending countries in Africa are, however, consistent with migration patterns, while others reflect distortions. Distortions in remittance flow allocations can occur due to the fact that, while international migrants are fewer than intraregional or domestic migrants, the value of international remittances tends to surpass that of other flows by far. Another distortion is due to the fact that refugee and remittance flows do not readily match as refugees quite often remit to, or receive in, neighbouring rather than in their home countries.[15] Moreover, levels of remittances sent tend to differ by migrant group and also depend on factors such as the migration intent or the duration.
As in other developing regions, for Africans migration is predominantly a strategy to reduce economic and/or political insecurities and to improve the livelihood both of the migrant and also of the family left behind. The prime motivator for most African migrants is still economic, though war or political insecurity are again increasingly compelling and more frequent reasons making refugees a key group among African migrants. Many of them are displaced to neighbouring countries. This applies especially to the Horn of Africa and parts of West Africa.[16]
Along with refugees, other key characteristics of African migration are the marked differences between North African and Sub-Saharan African migrant flows. North Africans have tended to move overseas, mainly to Europe, the Middle East and, to a lesser extent, to North America. In contrast, Sub-Saharan African migrants have tended to stay on the continent and moved overwhelmingly intraregionally or domestically.[17] Overseas destinations have mostly been in Western Europe and even there the share of African migrants is relatively low accounting for only 5% of the total migrant population of the OECD countries in 2002.[18]
Current African migration trends are considered a fundamental shift in what has always been a complex pattern. This is in contrast to the relatively consistent patterns and trends observed for Asia or Latin America.[19] Key aspects of the African trend are:
- increased outmigration from Africa including increased emigration from Sub-Saharan Africa to developed countries; the latter is a departure from previously strong intraregional movements
- more low skilled labourers now migrate overseas, a migrant group that previously migrated largely on the continent
- high skilled professionals migrate more on the continent as professional opportunities improve, such as in South Africa
- refugee flows are growing due to renewed war and civil strife such as recently in Ivory Coast
- more women migrate than previously; a feminisation of migration which has been observed in other developing regions for some time and is a much more recent trend for Africa
Macro & Micro Developmental Effects of Remittances
As part of the inherent link between migration and remittances, remittances constitute one of the developmental effects of migration. As remittances to Africa are highly underreported the developmental effects are also underestimated. Nonetheless, the officially recorded flows already indicate the significant financial inflow they constitute. The effects are felt most distinctly at the individual or household level of remittance receivers, but also at the community and national levels.
Some Macro Effects
In macroeconomic terms, remittances constitute an important financial flow to Africa though the volumes and relative share to other financial flows is smaller for Africa than for other developing regions. The significance of remittances tends to be overshadowed also because Africa, and especially Sub-Saharan Africa, is the most aid dependent of all developing regions. ODA accounts for about half of all financial inflows to Africa compared to a global average for developing countries of about one tenth.[20]
The economic effect of remittances for Africa is nonetheless pronounced and significant. Based on the officially recorded receipts alone, remittances represented 1.3% of GDP for Sub-Saharan Africa and 2.2% of GDP for the Middle East and North Africa (2002). This compares to 1.3% of GDP for all developing countries and to 2.5% of South Asia’s GDP, whereby the latter region records the largest effect of all. Compared globally, only four African countries were among the top twenty receiving developing countries as a percentage of GDP (2001), again due in part to missing data.[21] On a per capita basis, the only African country in the top ten was Cape Verde on rank nine (2000).[22]
Some Micro Effects
In such aggregate terms, remittance figures do not reveal what significance this flow has for the individual recipient. The GDP analysis, however, already indicates that officially recorded international remittances alone provide a significant contribution.
Often even more important than international flows, though, are urban to rural remittances which are very common in many parts of Africa. While not captured in any remittance statistics, typically many more people benefit from the domestic remittance flow. Estimates suggest this flow could contribute as much as three quarters of non-farm earnings in areas close to major cities and still one fifth of non-farm earnings for more remote areas.[23]
Typically remittances are income transfers from relatively richer to relatively poorer individuals and constitute a family welfare system which smoothes consumption, alleviates liquidity constraints, and is a form of mutual insurance. The vast majority of remittances reach family members who are either spouses or parents and many recipient households are headed by females.[24] Individual transactions are typically up to US$ 200 for international remittances and are often received on a monthly basis.[25]
The bulk of remittances are used for consumption as well as for investment in human capital (education, health, better nutrition).[26] The high proportion going to consumption is congruent with the aspect that migration and remittances are part of a livelihood and poverty reduction strategy of the individual migrant and their families.
Consumption alone can have a clear follow-on effect of an improved standard of living and educational opportunities for the receiving individual or household.[27] In Zimbabwe, for instance, households with migrants were found to have less cultivated land than households without migrants, but slightly higher education levels.[28] For Burkina Faso, it was estimated that international remittances reduced the headcount poverty of rural households by about 7% and of urban households by about 3%.[29]
Investment in land, livestock, and in building or improving a home is also relatively common but secondary to daily needs and human capital expenses. Still less of remittances is used for investments, either in savings[30] or in a business, or to repay debt, such as a loan for the expenses in going abroad. Insecurity tends to be the main motivator for investment, and the type of insecurity affects the type of investment.[31]
Some Communal Effects
While remittances are typically transfers between individuals or families, some of the migrants participate in community or church groups that make collective remittances to their home communities. Often they are collected through fundraisers and applied to a range of investments, including building or renovating schools or churches.
In the context of the African diaspora, the spectrum spans more or less organised groups and different organisational forms. AFFORD (2001), for instance, lists a number of African and other groupings and points out that they can take the form of associations, cultural or church groups, refugee groups, ethnic professional groups (e.g. Society of Black Lawyers), or even virtual organisations using the internet (Somali Forum). The most documented examples are the communal or collective sending and use of remittances of Malians and of Senegalese in France.[32] Other examples include Ghanaian overseas migrants who participate in ethnic- and town-based associations. In the 1980s and early 1990s, some health institutions in Ghana survived on donations from Ghanaian migrant associations.[33] Some of these associations also assist in the transfer of individual remittances to help bridge the gap of weak financial systems.