Africa diaspora remittances charges need to fall to 1%, Ecobank CEO says
Africa's economic growth depends on the formation of a deeper pool of domestic savings – but high charges for remittances from the diaspora are undermining that aim.
Charges of between 7% and 10% for diaspora remittances are “just not acceptable”, Ade Ayeyemi, CEO of Ecobank, told The Annual Debate Africa Investment conference in London on June 5. “Prices need to come down to about 1%,” Ayeyemi said.
In some parts of Africa the picture is even worse than painted by Ayeyemi. The World Bank says that the global average cost of sending remittances has remained nearly stagnant at 6.9% in the third quarter of 2018.
- Sub-Saharan Africa continues to have the highest average cost, which came to 18.7% in the five most expensive African corridors.
- Factors behind this include de-risking measures taken by commercial banks and exclusive partnerships between national post office systems and a single money transfer operator, the World Bank says.
Low volumes of formal flows, inadequate penetration of new technologies and an increase in costs to combat money laundering and the financing of terrorism are keeping charges high. “No solutions are yet in sight for the difficulties posed by the de-risking practices of correspondent banks,” the World Bank says.
Sanjeev Gupta, executive director at the Africa Finance Corporation, argued in London that a long-term capital base of domestic savings is needed in Africa to make foreign investment possible. “We don’t see it,” he said. “Diaspora remittances can be part of the solution”.
The amount of money sent by immigrants to their home countries in sub-Saharan Africa increased 10% to a record $41bn in 2017, with Nigeria being the largest recipient.
- According to Pew Research, the total amount of money sent is likely much larger as only formal channels such as banks are counted.
- The World Bank predicts that remittances will continue growing to $47bn in 2019.
- In relation to GDP, Gambia has the largest share of remittances, followed by Comoros, Lesotho, Senegal, Liberia, Cabo Verde, Zimbabwe, Togo, Ghana and Nigeria.
Researchers led by Uchenna Efobi at Nigeria’s Covenant University argued in April that remittances can be a driver of industrialisation and can complement debt financing for investment purposes. The Diaspora is more likely to be willing to invest in African emerging or frontier economies compared with foreign investors who may be unwilling to stomach the risks, the paper argued.
Banks need to grasp the nettle of excessive charges to contribute to African economic growth. The costs of fighting terrorism and money laundering won’t go away, so consolidation of banks’ remittance services may be needed.