It’s time to repeal the remittances “Super Tax” on Africa


This page in:

Remittances are the shining light of development policy. While debate rages in austerity-hit Western capitals about spending on aid, remittances cost tax-payers nothing. Remittances to developing countries are worth nearly half a trillion dollars – that’s three times the level of aid – and they’re rising fast, quadrupling since the turn of the century. And remittances work. It’s hard to imagine a more efficient targeting system than people sending money home to their own families and the facts bear that out; remittances are linked to improved economic, health and education outcomes. And as if those benefits weren’t enough, remittances are a huge driver of financial inclusion, acting as a gateway to banking for the people sending and receiving them.

But people sending money home to many parts of the world, particularly sub-Saharan Africa, are paying far too much. They face what is, in effect, a remittances ‘super tax’. A worker sending $200 from London to Lagos can pay fees of over 13%, more than fifty percent above the global average. And within Africa it’s even worse, sending money from South Africa to Malawi could cost upwards of 20%. Of course we all expect some fees for financial transactions but there is strong evidence that these costs are excessive and are restricting the poverty-zapping remittances that reach poorer countries. Reducing fees for sub-Saharan Africa to the global average for instance would mean an extra $1.3 billion reaching families in the region.

And we’re not moving nearly fast enough to reduce fees on remittances. We’ve known about the issue for a while; the G8 committed in 2009 to the ‘5x5 goal’ of reducing the global average fee for remittances to 5% within 5 years. But despite some progress, we’re still at close to 8% globally and 12% for sub-Saharan Africa. Indeed, if the cost of sending remittances could be reduced by just 5 percentage points relative to the value sent, remittance receipts in developing countries would receive over $20 billion dollars more each year than they do now. That amount of money could educate 18 million children and buy enough vaccines to prevent 8 million children dying from diseases like malaria.

To fix this situation, we need action on three fronts.

First and foremost, we need to increase competition in the global remittance market and empower migrants by helping them make informed choices about the services they use. This is probably the most effective way to drive down costs and will require action at all levels and in countries that are net senders and net recipients of remittances.

Regulation of international money transfers is complex, and has been tightened in some areas because of understandable concerns over illicit flows of money from criminals and terrorists. But there are things we can do while maintaining those safeguards.  One is to require higher standards of transparency from money transfer companies on how they charge – on exchange rates, fees and taxes for both sender and recipient – so that it’s easier for consumers to shop around and know what they’re getting. Another is for governments to unpick exclusivity agreements which tie particular banks to particular money transfer companies. And a third way to boost competition is to reduce restrictions which prevent post offices and micro-finance institutions, which are much more accessible in many rural parts of the world than mainstream banks, from performing money transfers. None of these actions alone will reduce fees overnight, but together they would increase choice and help push costs down over time.

Second, we need to encourage technological innovation. Mobile money is already transforming the financial sector in many countries: you can now use your phone to buy a round of drinks in Nairobi, or pay Ebola health workers in Sierra Leone, or give farmers access to weather insurance in Tanzania.  Emerging technologies have the power to extend direct person-to-person, phone-to-phone money transfers across national and currency borders, lowering costs at the same time. We need to back these innovations and let the best thrive. Again, it’s about striking the right balance of protecting consumers while letting new technologies emerge, and it might take some creativity on the part of regulators to get it right.

Third, we need to keep up the political pressure for reform. We know that remittances are a large and growing part of the development landscape. And we know what we have to do to make them even more effective. Reducing the cost of remittances comes down to political will – this is a global issue and it needs a collective global response.

And we’re seeing early signs that when the case is made strongly the money transfer companies listen. For example, in London a group of companies are committing to a first ever World Remittance Day where they will commit to a day with ‘no fees, no margins’ on all transfers as a signal of intent to lowering costs in the future. This is accompanied by financial education and inclusion for Londoners; in a city where around one in three are foreign born, the potential impact is huge.

That’s the really good news: we know what we need to do. If we can unite on this issue we can repeal the super-tax on remittances and improve the lives of millions of families around the world.


Dame Tessa Jowell

UK Labour Party Member of Parliament, and former Minister for the London 2012 Olympics

d. phillips
March 04, 2015

There's no doubt that transfer fees are a cost and their reduction is important. But costs have in fact been falling and if they were so onerous it is difficult to see why there has been such enormous and sustained growth of remittances. Finding a way to avoid punitive security controls on remittances (e.g. to Somalia where I am at the moment) may be more important. But much more important still for economic development than remittances (which largely go to consumption) is the role of the international diaspora through return of capital, direct and intermediated investment, the provision of skills and knowhow especially in starting up businesses, and in the building of institutions and social norms including compliance with the rule of law. Finding some useful way(that provides genuine added value) to facilitate this dynamic is the real key. Please read my book: "Development without aid: the decline of development aid and the rise of the diaspora" (Anthem).

Matt Juden
March 04, 2015

The failure to meet the remittance cost reduction target is partly an unintended consequence of anti-money laundering and counter the financing of terror enforcement. Regulators have miscommunicated the risks implied by small cross-border transactions and have dissuaded large retail banks from doing business with money transfer operators. At the Center for Global Development we've convened a working group focusing on this issue.…

Subrat Patnaik
March 05, 2015

Remittance from under develop countries such as Papua New Guinea to develop and developing countries like .... almost 1 billion every year it's negative effect on country.

July 23, 2016

A group of friends and I came up with an peer-to-peer (P2P) money transfer initiative. We primarily work in Africa, so for example, we will match someone sending USD to Cameroon with someone sending Central African CFA francs to America.
We have taken the necessary precautions to ensure all transactions are secure. Trust is measured through social networks like social networks, email, mobile number verification, and endorsements from the other trusted members of the community. Members also provide demographic information about themselves on their profile -- the more details, the more trust. We verify our users by texting and emailing them, confirming they are real people. We also allow peer-to-peer ratings.