RemittancesGateway.org

Leveraging the Impact of Remittances to Africa

Thursday, 14 January 2010 12:55

Source: AllAfrica.com

Increasingly Africans living and working abroad are being called upon to take a more active role in the development of the continent. Some African countries have established Diaspora forums to engage the experience (and financial assistance) of these expatriates and migrants.

An often overlooked fact about the African Diaspora is that the amounts of money migrants send home to relatives and friends each year generally exceeds the amount of money given to Africa through official development aid.

Estimates of the average total annual value of remittances to Africa vary between $32 and $40 billion. (This excludes the informal network of money transfers, which is significant. If taken into account this figure could increase by as much as 50%.) Official development aid is around $25 billion per annum (according to promises issued during the G8 Summit).

In a recently published International Fund for Agricultural Development (IFAD) report called Sending Money Home to Africa: Remittance markets, enabling environment and prospects, the benefits of remittances and challenges of the money transfer market are highlighted.

Recipients of remittances in Africa were found to have higher levels of education, were more likely to have some form of savings account and reported double the level of savings than those who were not receiving money from abroad. Yet there are reportedly more money transfers agents in Mexico than in the whole of the African continent (despite the fact that Mexico has only 10% of the population of Africa). Numerous other challenges and findings are highlighted in this interesting report.

According to the report, two major money transfer companies control 65% of all remittance payout locations [in Africa]. Western Union and MoneyGram are by far the most significant players in the region.

Karen Kühlcke interviewed Aida Diarra, Western Union’s vice president for the Ecowas region, about remittance flows and the role of the African Diaspora in contributing to the development of Africa.

Has the financial crisis had a significant impact on remittance flows in the last 18 months and if so, what has the impact been?

Yes, it has had a negative impact but this has varied across regions. In Africa remittance flows have declined by between 6% - 8% but in Asia and Europe the decline has been as high as about 15%.  However, I would like to emphasise that the long-term drivers for money flows are positive – these drivers include migration and population growth.  In fact, the World Bank foresees acceleration in remittance flows in 2010, so the outlook is positive.

Could you describe some of the innovations in money transfers and payments that are changing the way people send money?

Online money transfer is growing very rapidly. Prepaid/account-based (cash-to-account) growth is something we are watching closely and of course the development of mobile money transfers is something we are paying great attention to.

Western Union has secured agreements with solid mobile operators in the Philippines and in Africa and has been able to pilot some schemes. We need to work closely with other parties to address regulatory challenges and client needs. Increased accessibility is very important (especially in rural areas).

What are these regulatory challenges?

Some of the regulatory challenges relate to the fact that only banks are permitted to transfer money and typically most banks have, in the main, an urban network with most branches in cities and towns. Africa has large rural populations and it is difficult for potential clients to take advantage of the innovations available.

What trends will you be keeping a close eye on during 2010?

Migration patterns are key for us – with increased challenges for migrants in Europe we have noticed changing patterns in Africa as well as changes in the typical migration from rural to urban areas. Remittance flows sometimes switch from inbound to outbound and we will be watching for that as well. Of course, as mentioned above, digital developments are also key.

Africans in the Diaspora could potentially play a significant role in the development of Africa. The African Diaspora Marketplace (ADM) is presumably one way of harnessing this potential. Did the response to the competition exceed your expectations?

I was very excited to get involved in the project and became even more excited when I saw that more than 700 project proposals had been submitted by US-based African entrepreneurs. We have now shortlisted 60 finalists with projects worth about $22 million.

The next step is that shortlisted finalists will have the opportunity to present their proposals to the panellists and hopefully we will be able to select between 10 and 20 SMEs that will benefit from the grant funding.

What have you learnt from the competition thus far (about migrants/which type of projects attract interest/anything else)?

The majority of proposals were for the implementation of projects in the following countries: Ghana, Nigeria, Ethiopia, Kenya and then Senegal and Sierra Leone.

As expected, most of the projects fall into the sectors that are closely aligned with the needs of Africans:

• Agriculture, aquaculture and livestock

• ICT

• Environmental services

• Other services including health care, tourism services etc.

Do you foresee Western Union playing a greater role in facilitating this expatriate investment in future?

The ADM is just one part of Western Union’s Our World, Our Family programme through which we are committing $50 million over five years to facilitate economic opportunities for the world’s mobile workforce.

I would like to mention another of our programmes in Mexico – the 4 + 1 programme. We fund different infrastructure projects within the Mexican states experiencing high unemployment, social difficulties and consequently migration. Another interesting project is the Western Union Conversation in the Philippines where we work together to brainstorm better ways to leverage remittances.

The knowledge and experience gained is transferable. Through raising awareness about opportunities, we are able to create consensus around needs and possible means of improving the situation. Learning is shared - for example, I was recently at conferences in Tunis and Mali where some of these findings were discussed.

Which countries in Africa are showing the most potential for growth (in terms of number of agents and remittance flows) in the next couple of years?

The need to send and receive money is common across continents. In Africa, we are excited about the possibilities in South Africa after having entered the market at the end of 2008. We are keeping an eye on some interesting dynamics in Angola, and Morocco and Nigeria remain our biggest markets. Inbound versus outbound money transfers is a key dynamic.

Do you find doing business in Africa different from doing business in other regions of the world? If so, please elaborate on some of the unique aspects of doing business in Africa.

Africa is extremely diverse in terms of language, culture and people and is therefore a very enriching region in which to work. Western Union has been operating here for over 17 years and we remain very excited about the opportunities on the continent. The key dynamic for success in Africa is - how do we ensure we can bring the services closer to consumers? African consumers are becoming more sophisticated and demanding and this is hastened by the digital age.