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How will the financial crisis affect remittances to Africa?

Marilou Uy's picture

Sub-Saharan Africa received almost $12 billion in remittances in 2007, and that was only the official number. With "informal" flows added the total amount can easily be double that number. Nigeria, Kenya, Sudan, Senegal, Uganda and South Africa received the highest volume of remittances, while in smaller countries such as Lesotho remittances represent up to a quarter of GDP.

Remittance costs are significantly higher for Africa compared to other regions; costs can go up to almost 25% of the amount remitted. Remittances between African countries (from South Africa, for example) are especially expensive. Reducing these costs will mean substantial extra transfers, and this will be a focus of the World Bank’s medium term agenda on the African financial sector. The immediate concern is, however, stability of flows: the recent international credit crisis will lead to a slowdown in remittances. Remittances have generally been counter-cyclical in the past, as they tend to increase when the receiving country experiences adverse events.

But a recession in sending countries could hurt the capacity of migrants to send money home. It is still too early to determine if the latter factor will dominate and cause a decline in the total amount remitted, although there are some disturbing signs. High-frequency data on remittances for African countries are scarce, but available data show that remittances from the US seem to have slowed down in recent months; remittances from other sending countries, however, have not yet been affected.

Since some readers of this blog are senders of remittances, and others recipients, it would be helpful to hear how you see remittances changing  in the current situation.

Comments

Submitted by Abdia Mohamed on
My experience comes from countries under conflict (e.g Somalia). Before the crisis $100 used to sustain a family of five for a month. Unfortunately, that is a history now. I also agree that if recession deepens in sending countries, it could hurt the capacity of migrants to send money home. There are at least 4 major hawals in our area. It would be interesting to find out whether they have seen a decline in money sending.

Submitted by A. Mensah on
Abdia is right. I was in Ethiopia last week (April 18-24, 2010) and noticed the same effect given my previous experience. $100 which seemed to be the much easiest amount of money to do away with interms of remittances must now be increased. The situation is also dire when one factors in transaction costs, particularly, for those countries without hawals etc, and must go to commercial outlets such as Western Union and others.

Submitted by Claudia Franco-Gonzalez on
The financial crisis and likely economic recession will of course depress remittances from migrants worldwide. But this is probably a good thing. Dependence of countries on remittances from their nationals working abroad tends to allow the postponement of needed reforms at home (e.g., Mexico and Philippines). At the same time, the economies of the countries in which the migrants work will often suffer, with negative impact on balance of payments, and an effect of maintaining low wages and economic inequality.

Submitted by Ben Ovio on

People remit money out of: sheer personal sacrifices and disposable incomes available to them. With high inflation and soaring bills mounting in countries like the UK, it is becoming a challenge to make remittances amid looming fuel poverty. Whats more, the reality is that by next year, there would obviously be significant reduction in remittance flow to developing countries.

However, for some ingenious people, there is a new dimension of remittances from developing countries to developed countries, as it appears access to 'quick cash' is rampant. Could we have some contributions on remittances from Africa to developed countries. Perhaps, with the current predictions and warnings from professionals and policy makers and analyst, it appears the economic recession has just begun.

Submitted by Tim on
As may be anticipated that remittance to Africa will reduce, likewise the remittance from Africa to developed world will too reduce. The creater part of remittance from Africa is mainly in the form of college fees, college up-keep for students as well as the national imports both from the private sector and Governments. Parents now will look in-ward in terms of sending their children abroad, thus universities in Africa are due to benefit, depending who is well positioned and known for quality education. A study on the intra- Africa remittance is neccessary to determine the above thinking. Africa universities are more cheaper than those in developed world in terms of accomodation, transport etc.

Submitted by Oz on
1. There appears to be a more significant drop amongst African immigrants who are small business owners than those who are employees. No surprises here, except both groups seem to complain with equal vigour about the drain on their income by monies sent back home. 2. Wall streeters (finance folks) have taken on a defensive posture against request for money by kinfolks back in Africa. Though their income may have been drastically impacted they still feel responsible to those waiting on them back in Africa. Surprisingly (eyeball data collection) it appears that remittances are not as elastic as I would have assumed. 3. If friends and clients are a true representation of the true picture of the aggregate of the true picture then remittances to Africa has fallen over the last two years. However this drop may be at a slower pace than the fall in aggregate income of African immigrants in the United States.

Submitted by Priest on
the recession would really affect remittances into Africa because most of the relatives in the developed countries do not have valid papers and are bound to be the first people to lose their jobs. we should feel the effect by the 2nd quarter next year. this development should be taken into consideration in the budget for 2009 of Governments and institutions

Submitted by jan on
I live in Zambia and occasionally send money with western union. Since September 2008 I witnessed several times that receivers are rejected at the counter. The reason they are given is that presently there were not enough senders, which results in a shortage of cash. I hold this to be an inacceptable excuse. Western Union is not a lending institution, it makes its profit with charges for transactions. That means the reason for a cash shortage at a western union branch cannot be a lack of senders (that would be a logical absurdity) but a failure of the main branch to submit cash to their branches in time. This delaying pattern is potentially fraudulent because Western Union can use the time gap between date of sending and date of payment to the receiver to let the senders money work for Western Union. Even if Western Union is not intentionally delaying the payment, for whatever reason, I find it scandalous since again it is the poorest who finally carry the weight of bad corporate management. Did you observe similar cases of delayed money transfers in other countries? Do you know more about the causes of the problem?

There is no doubt the anticipated problem is big more than in developed countries. The main problem African countries depend remittances for Basic needs, the habit which is very dangerous. yet still most of the countries are not able to offer any assistance to Financial Institutions the way done by developed countries. Thanks to world bank as I heard that The World Bank has reiterated its commitment to providing the support needed by African countries to minimize the negative impact of the global financial crisis on growth and poverty reduction. We are also discussing more less similar issue in our blog. International Development http://internationalmaendeleo.blogspot.com/

Submitted by Timurat on
Countries that have opened their economies the world's finances, had put themselves at a massive risk, but have not learned a lot of benefits for development. Developing countries are in dire need of financial infusions from the outside, and it is needed to create a system that will give them all the necessary, and not exposing them to great risk of another financial crisis.

yes according to THE currentley financial crisis the prices of goods raise and we live a highley and speedy raise in the cost of living so we decrease the amounts of money we send back home.Yesterday I heard about the fall down of our local currency in equivelant to the U.S DOLLAR THE PERCENTAGE IS 20%.

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