The world has faced a number of challenges in the last couple of years. For instance, the world continues to face the impact of climate change – like never before -, in addition to geopolitical tensions. This greatly affected remittances to low- and middle-income countries (LMICs). However, now remittances have started experienced a slight growth. In fact, in Africa, remittances inflows have remained resilient.
According to data from the World Bank, remittance flows to Sub-Saharan Africa are estimated to have increased by about 1.9% in 2023, reaching Sh8.29 trillion ($54 billion). This growth can be attributed to strong remittance growth in countries like Mozambique, Rwanda, and Ethiopia. Nigeria, Ghana, and Kenya, as major recipients, also experienced positive gains in remittance flows.
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While overall remittance flows to Africa showed slight growth, there were variations across different regions; in East Africa, countries like Ethiopia and Rwanda saw significant growth in remittance flows. Ethiopia experienced a remarkable 16% increase, while Rwanda recorded a growth rate of 16.8%. Ghana and Kenya, on the other hand, posted estimated low gains of 5.6% and 3.8%, respectively. In West Africa, Nigeria, the largest recipient of remittances in the region recorded a 2% increase.
In Central Africa, some countries experienced growth, others faced challenges. The Democratic Republic of Congo, for example, witnessed a decline in remittance flows due to political instability and economic uncertainties. On the other hand, countries like Cameroon and Gabon experienced positive gains. Countries in Southern Africa, such as Mozambique, have seen significant growth in remittance flows. Mozambique recorded a remarkable 48.5% increase, indicating strong support from the diaspora. Other countries in the region, like South Africa and Zimbabwe, have also benefited from remittance inflows.
According to Dilip Ratha, Lead Economist, Migration and Remittances and Head of KNOMAD, remittances are one of the few sources of private external finance that are expected to continue to grow in the coming decade. “They must be leveraged for private capital mobilization to support development finance, especially via diaspora bonds. Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing,” he said.
Despite this slight growth in remittance flows to Africa, there still includes a number of challenges. For instance, remittance costs still remain persistently high, making it costly for migrants to send money back home. According to the World Bank’s Remittances Prices Worldwide Database, it costs an average of 6.2% to send Sh30.720 ($200) to Africa. As a result of the high cost, there is a limit on the amount of money migrants can send as well as reduce the overall impact of remittances on poverty reduction and economic development.
Exchange rate fluctuations have also been affecting the value of remittances received by African households. For instance, as the Kenyan Shilling depreciates against the dollar, the purchasing power of remittances decreases.
Global economic conditions, including inflation and low growth prospects, have also been posing risks to remittance flows to Africa. Migrants’ real income tends to decline due to these challenges, affecting their ability to send money back home. The trajectory of weaker global economic activity is expected to impact remittance growth in the coming years.
Governments and stakeholders should work towards reducing costs, improving exchange rate stability, and creating an enabling environment for remittance flows. By leveraging remittance inflows, African economies can further stimulate development, reduce poverty, and unlock investment opportunities.