December 6, 2022

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Africa’s Remittances set for a Post-COVID-19 Pandemic Recovery

Across sub-Saharan Africa, millions of families rely on remittances to stay afloat.

The money sent home by migrants has grown ten-fold in 20 years: in 2019, US$48 billion was wired back through formal channels—significantly more than the US$31 billion the region received in foreign direct investment (FDI). In Lesotho, for example, remittances make up a quarter of the nation’s GDP, while in Senegal and the Gambia, they account for 10% and 21%, respectively.

In Lesotho, for example, remittances make up a quarter of the nation’s GDP, while in Senegal and the Gambia, they account for 10% and 21%, respectively.

However, the spread of Covid-19 posed a serious threat to crippling this vital lifeline. The pandemic heavily affected the continent’s economies, causing mass job losses in industries like hospitality and construction, which historically relied heavily upon the migrant workforce.

Migration flows continued to dry up as countries placed further restrictions on travel and the traditional brick and mortar remittance locations used by millions around the world were swiftly forced to close. Without work to sustain them, some migrants returned to their home countries. Because of these factors, it came as no surprise that the World Bank predicted that remittances to sub-Saharan Africa would drop by almost a quarter in 2020. 

However, reality has shown a very different picture: flows of money to the region have proved remarkably resilient, only declining by 12.5% in 2020, to US$42 billion.

When looking further into the shift, it is notable that Nigeria alone lost 28% of their nation’s remittances in the year, which skews the data significantly.  Not counting Nigeria, sub-Saharan Africa’s remittances actually increased by 2.3%, rising by 37% in Zambia, 16% in Mozambique, 9% in Kenya, and 5% in Ghana.

As 2021 quickly approaches, World Bank predicts that sub-Saharan remittances should rise by 2.6% in 2021, to US$43 billion, and a further 1.6% in 2022, to US$44 billion.

To make this a reality, sub-Saharan migrants must contend with continuously challenging circumstances and find new and innovative ways to keep money flowing home.  For instance, the persistent challenges all migrants have faced in Europe to acquire work permits has sparked a new trend – many more sub-Saharan migrants are seeking employment opportunities within their own continent.

As migrants around the world find their footing, they must also stay vigilant about current ways to send money overseas to ensure they are maximizing their efforts to send money home.   Many services charge hidden and high fees, which can make it difficult to send money home. It is more expensive to remit money to sub-Saharan Africa than anywhere else in the world, with costs averaging over 8% (more than twice the Sustainable Development Goal target of 3%).

That is partly because remittances traditionally and often still today rely on cash being dropped off and picked up from an agent, mobile money services—of which there are almost 550m registered users in sub-Saharan Africa — provide new and improved cost effective solutions for customers looking to reduce those costs. In West Africa, mobile money remittances now face an average fee of 1.6%, compared to almost 7% for non-mobile services, according to the GSMA, a mobile industry group.  

East African mobile transaction fees are much higher, at 7.3%, and 13.7% for non-mobile payments.

Remittance flows can also be optimized by cooperation between African governments. A continent-wide free-trade agreement— the African Continental Free Trade Area (AfCFTA)—became operational this year with the aim of smoothing transactions between different currencies and countries.

Africans looking to transact money across borders have more options than ever at their fingertips. Here at WorldRemit, a global digital payments service, ensuring transparency and speed in every transaction is always top of mind to best cater to the needs of our customers.

For example, customers in Tanzania and Rwanda can now wire cash to family and friends in dozens of countries overseas, as well as receive it.

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