This blog is part of the “Africa Knowledge in Time for COVID-19” series of analyses and discussions hosted by the office of the Chief Economist, Africa Region. The series draws on research and the experience of policymakers on the frontlines, to put forward critical questions and issues around the public health and socio-economic implications of the pandemic for African countries.
The socieoeconomic shocks in the wake of the COVID-19 (coronavirus) pandemic compound the hardships for Africans, including migrants far from home. Through remittances, African migrant earnings remain key family income. The diaspora is also critical to the growth and development of African countries. But these remittances are falling sharply during the pandemic.
The majority of African migrants outside Africa live and work in the European Union, the United Kingdom and the United States, and they are among the most vulnerable to the historic job losses in their host countries. According to the 2019 U.S. Bureau of Labor Statistics, foreign-born workers are more likely than native-born workers to be employed in service occupations (22.5% versus 16%); natural resources, construction and maintenance occupations (13.4% versus 8.2%); and production, transportation, and material moving occupations (14.7% versus 11.2%). These are some of the hardest hit industries of the pandemic. Consequently, African migrants have been subjected to furloughs and job cuts due to lockdowns and containment measures to curb the spread of the virus.
Some governments have rolled out social welfare assistance programs but most migrant workers, as resident non-citizens, are ineligible. The COVID-19 pandemic has significantly disrupted the flow of remittances at the international, regional and domestic level, yet remittance transaction costs are still exorbitant. Policy responses to reduce costs would be beneficial to many households for whom remittances are a lifeline.
The pandemic is heavily impacting most migrant destination economies, affecting both supply and demand sides. Remittances are bound to plummet in Sub-Saharan Africa (SSA) due to vulnerability to adverse economic shocks facing migrants in their destination countries. Additionally, various containment measures are disrupting the financial infrastructure for remittance receipts. Bank branches and cash pickup services have closed or reduced operating hours and some money transfer operators have ceased cash transactions. (Anecdotally, it appears that the COVID-19 crisis has spurred a relative increase in remittances sent via digital payment instruments.
Due to the pandemic’s economic fallout in Europe, the United Kingdom and the United States, remittance flows to SSA are expected to drop by about 23.1% to reach $37 billion in 2020 (see Fig. 1). In a region where some countries such as Lesotho, Liberia and Comoros rely heavily on international remittances as the bulk of their foreign exchange revenue (86%, 82%, and 82% respectively in 2018), the implications could be dire. For countries in the Horn of Africa already reeling from desert locust infestation, the disruption of remittance flows is an additional shock in addition to food shortages which together could push millions deeper into poverty. Although remittance flows to SSA are projected to rebound by 4% to reach $38 billion in 2021, these estimates are subject to change depending on how fast economies recover after the pandemic.
Figure 1: Estimates and Projections of Remittance Flows and Growth Rates
Source: World Bank-KNOMAD
Intraregional remittances will be negatively affected by the pandemic partly due to the disruption of the informal sector and slowdown in economic activities. Intraregional migration comprises more than two-thirds of all international movement of SSA migrants. The informal sector accounts for more than 85% of employment and 90% of new jobs in the region, and the informal economy averages 40% of the GDP for the continent. Finally, it represents more than 50% to 65% of gross domestic product (GDP) for Nigeria, Tanzania, Benin, Angola, Gabon, Zimbabwe, and the Central African Republic. It is already becoming clear that strict containment measures that reduce movements within and across borders have a negative impact on livelihoods based in the informal sector.
Domestic remittances are also bound to decline. Rural dwellers who migrate to urban centers are involved in buying and selling lower priced goods from China to resell them at a profit. They send domestic remittances to their families residing in rural areas and in many African countries, these transfers represent a substantial source of income for rural households (Fig. 2). Disruption in the supply chain from China will likely affect the livelihoods of internal migrants and their dependents in rural areas.
Figure 2: Proportion of rural households that indicated remittances as an important source of income
Source: World Food Program (2020): Economic and Market Impact analysis of COVID-19 on West and Central Africa. March 2020.
Even when the global economy begins its recovery, steep transaction costs will eat into meager remittances and lengthen the return to pre-crisis levels. Compared to other regions, SSA remains the most expensive destination for remittances, hence the region will clearly benefit from reduced transaction costs during the COVID-19 crisis and beyond. Lowering remittance costs will likely save Africa billions of dollars, while increasing the disposable income of millions of households. The classification of money agent services as essential would facilitate the process of sending and receiving remittances. Promoting and amplifying the use of digital technology (mobile and electronic payments) to process transfers could also ease the process; digital payments also eradicate the concerns many people have of COVID-19 transmission through the handling of cash.
Governments should encourage increased competition among services providers and promote the increased use of digital payment systems. Migrants and their families also suffer under too-strict regulations. Designed to reduce money-laundering, stiff rules hurt real people who send remittances of about $200 a month to their families. Loosening anti-money-laundering measures needs to be embraced so the region can recover more quickly from this economic crisis.
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