Remittance Flows to Developing Countries

The following Report was received from an AfricaFiles email and AfricaFiles found it in "Africa Focus" the Africa Focus article is reproduced in part here.

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Sending Money Home: Worldwide Remittance Flows to Developing Countries

International Fund for Agricultural Development

This report has been elaborated based on a study commissioned by IFAD to the Inter-American Dialogue in collaboration with the Multilateral Investment Fund of the IDB and contributions from the European Union, Government of Spain, Government of Luxembourg, CGAP and UNCDF.

For full report, including summary data for 51 African countries, see: http://www.ifad.org/events/remittances/maps .

For more information, please contact:
Pedro de Vasconcelos,
Remittances Programme Coordinator, IFAD at:
remittances@ifad.org

Remittances, the portion of migrant workers' earnings sent back home to their families, have been a critical means of financial support for generations. But, for the most part, these flows have historically been "hidden in plain view", often uncounted and even ignored. All that is now changing - as the scale of migration increases, the corresponding growth in remittances is gaining widespread attention. Today, the impact of remittances is recognized in all developing regions of the world, constituting an important flow of foreign currency to most countries and directly reaching millions of households, totaling approximately 10 per cent of the world's population. The importance of remittances to poverty alleviation is obvious, but the potential multiplier effect on economic growth and investment is also significant.

The driving force behind this phenomenon is an estimated 150 million migrants worldwide who sent more than US$300 billion to their families in developing countries during 2006, typically US$100, US$200 or US$300 at a time, through more than 1.5 billion separate financial transactions. These funds are used primarily to meet immediate family needs (consumption) but a significant portion is also available for savings, credit mobilization and other forms of investment. In other words, the world's largest poverty alleviation programme could also become an effective grass roots economic development programme, particularly in the rural areas that present some of the greatest challenges to financial inclusion.

Three aspects could further enhance this development:
* Improvements in data collection,
* Reduction in transaction costs, and
* Increased efforts to leverage remittance flows for greater development impact.

Africa

1. Migration
Sub-Saharan Africa has over 30 million people in the diaspora. Of all the world's regions, however, Africa's predominant migration is intraregional. The fluid migration within West Africa, for instance, is partly due to the region's status as a geopolitical and economic unit, but also by a common history, culture and ethnicity among many groupings. There is also significant international migration to former European colonial powers, such as France, England, the Netherlands and Italy, among other countries.

2. Remittances
Remittance flows to and within Africa approach US$40 billion. North African countries such as Morocco and Egypt are the continent's major recipients. East African countries heavily depend on these flows, with Somalia standing out as particularly remittance dependent. For the entire region, these transfers are 13 per cent of per capita income and on a country-by-country average represent 4 per cent of GDP and 4 per cent of exports.

3. Rural remittances
Remittances to rural areas are significant and predominantly related to intraregional migration, particularly in Western and Southern Africa. The mobility of Africans within theses region has been followed by the sending of regular amounts of money. Two thirds of West African migrants in Ghana remit to rural areas in their countries of origin.

4. Market and financial access
When compared to other regions, money transfers to Africa are among the most problematic mainly due to the fact that the continent faces two major challenges: high rates of informality, particularly within the continent, and a regulatory environment that foments monopolies. In turn, transfer costs are higher and remittance senders obtain less value for their money. Most African countries restrict money transfers to banking depository institutions, and restrict outbound flows of money unless used for trading.

As a result, informality emerges as a solution to the need to remit. Another effect, however, is the persistence of monopolies by banks and the few money transfer operators handling transfers. In all of West Africa, for example, 70 per cent of payments are handled by one money transfer operator. Moreover, 50 per cent of payments are handled directly by banks and the rest by MFIs either as sub-agents of banks, with some exceptions (in Senegal, for example, MFIs operate as independent agents). Nigeria is a case in point: nearly 80 per cent of transfers are handled by one money transfer agency, and banks are the sole remittance payers in the country. Africans in South Africa are also faced with significant regulatory restrictions in sending money, and thus rely on informal networks.

Because regulatory environments often prevent other non-banking financial institutions from making transfers or restrict outbound transfers, financial access is also a casualty. As few institutions participate in the transfers, and banks do not cater to lowerincome individuals, financial access among African senders and recipients is relatively low. In some countries like South Africa barriers to entry relate to their legal status, thus disenfranchising migrants. Other countries such as Kenya are seeking to deepen financial access by leveraging remittance transfers through the use of mobile telephony.

Facts and figures for Africa
* Total number of migrants: 29,199,544
* Total remittances (US$ million): $38,895

* North Africa: $17,129
* West Africa: $10,803
* East Africa: $5,153
* Central Africa: $1,317
* Southern Africa: $4,493

Indicators
* Annual average remittances per capita: $83
* Annual average remittances per migrant: $1,358
* Remittances as percentage of GDP: 4%
* Remittances as percentage of exports: 4%
* Ratio of remittances per capita and GDP per capita: 13%
* Average share of migrants in total population: 7%
* Average share of migrants in countries with a population under 1 million: 20%
* Average share of migrants in countries with a population over 1 million: 5%

Top 5 recipients by volume received (US$ million)
* Morocco: $6,122
* Nigeria: $5,397
* Algeria: $5,164
* Egypt: $3,479
* Tunisia: $1,491

6 out of 52 countries receive more than US$1 billion

Main destination and migrant percentage to that destination
* North Africa (France): 33%
* West and Central Africa (Cote d'Ivoire): 14%
* Southeast Africa (Tanzania): 11%

Cost of sending $200: 8%-11%

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