The cost of remittances

Sending money home is a local as well as international phenomenon, differing only in volume and cost. Among Africans, especially sub-Saharan Africans, it is as much a fad as it is a norm that defines the migrant community. At local level, rural folks are always receiving from the (migrant) city dwellers.

Every year, for various reasons ranging from limited opportunities at home, the quest for greener pastures to desire for more organised and functional environment, millions of migrants leave their homes and families behind to make a living overseas. These migrants, periodically, send billions of dollars home to their loved ones, collectively spending millions of dollars on remittance prices in the process.

Available record shows that in 2012 alone, 30 million African migrants sent close to $60 billion in remittances, and with scarce opportunities at home, majority of about 120 million recipients in Africa depend on remittances for their survival, health, education, and livelihood.

These remittances come at great costs and, curiously, it costs more to remit money within African countries than doing same to/from overseas countries. This, in our view, is part of the prices Africans have continued to pay for their continent’s under-development.

It is alarming to note that whereas it costs Nigerian migrants $39.24 to send $200 from Ghana, sending the same amount of money to Nigeria from Italy, the United States, the United Kingdom and the Netherlands costs $19.15, $12.61, $12.66 and $22.07, respectively. World Bank’s Q1 2013 data reveals that the total cost for sending remittances from these four countries to Nigeria are the cheapest, respectively.

South Africa, Tanzania, and Ghana are considered the most expensive sending countries in Africa, with prices averaging 20.7 percent, 19.7 percent, and 19.0 percent, respectively, which leaves the continent with an average of almost 12 percent. This is higher than global average of 8.96 percent, and almost double the cost of sending money to South Asia which has the world’s lowest prices of about 6.54 percent.

Gaiv Tata, director of the World Bank’s Africa Region and Financial Inclusion and Infrastructure Global Practice, notes that high transaction costs are cutting into remittances which are a lifeline for millions of Africans, explaining that “remittances play a critical role in helping households to address immediate needs and also invest in the future”. We can’t agree less.

We also agree with Tata that bringing down remittance prices will have a significant impact on poverty, just as it can also advance financial inclusion since they are often the first financial service used by recipients who are then more likely to use other financial services, including bank accounts.

We advise that African governments should wake up to global economic realities in which market forces are allowing to deal with issues of this nature.

Massimo Cirasino, manager of the World Bank’s Financial Infrastructure and Remittances Service Line, says competition and transparency are key, advising that governments should implement policies to open the remittances market up to competition. “Increased competition, as well as better informed consumers, can help bring down remittance prices,” he adds.

As Send Money Africa’s database notes, banks, the most expensive remittance service providers, are often the only channel available to African migrants, and it is in light of this that we agree with the firm that a regulatory environment that encourages competition among remittance service providers not only gives migrants more choices, it can also help bring down prices.

We advise further that governments, especially in Nigeria, should create an enabling environment that will not only empower the recipients of these migrant remittances, but also encourage the migrants to return home. Central to this enabling environment, in our candid opinion, is the issue of power. The government, as a matter of necessity, must ensure that the ongoing reforms in the sector succeed. Getting the power sector right, we believe, means putting every hand on the plough.