Sunday, May 24, 2020

Remittances to Africa

According to estimates from the World Bank, the total amount of remittances during the coronavirus crisis is expected to plummet like never before — by up to 20% worldwide.

"This is unprecedented in the history of remittance flows ever since we started monitoring them since the 1980s," says Dilip Ratha from the World Bank. Africa will be particularly hard hit by the slump: The World Bank anticipates a decline in remittance flows of up to 23.1%. In 2019, a total of $48 billion (€42 billion) worth of money transfers were sent to sub-Saharan Africa. This year, the figure is likely to be closer to around $37 billion (€34 billion).
This isn't due to a lack of will. "A large number of migrant workers are lower-skilled," says Ratha. "They are also in the informal sector, for example in retail stores, hotels, tourism, farm workers." Many of these sectors have had to cease operations due to lockdown or social distancing measures.

"These migrants are vulnerable," says Ratha. "They are the first ones to be let go or their wages fall fast."
Without their own bank account, many of the migrants and their relatives have to process transfers via financial service providers such as Western Union, Moneygram or Ria. These industry giants charge high fees, but have few branches. So local business — often Afro shops or hairdressers — serve as transfer agencies. But many have been forced to close during the coronavirus crisis. This means the money can usually only reach Africa through side channels.

€105 billion would be needed for Africa to cope with the consequences of the pandemic. So far, foreign donors have pledged over €65 billion — this still leaves a gap of €40 billion. And that's the kind of money that many governments can't easily find: The pandemic is expected to shrink the economy by more than 5% this year, as the continent prepares to face its first recession in 25 years.

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