High remittance fees costing Africa Sh352 billion annually

By John Oyuke

The average cost of sending money to the continent is 12 per cent higher than the global average

African migrants lose Sh352 billion ($4 billion) annually when sending money home due to high remittance fees, the World Bank has said.

South Africa, Tanzania, and Ghana are the most expensive countries to send money to, with prices averaging 20.7 per cent, 19.7 per cent, and 19.0 per cent, according to the Bank’ Send Money Africa database. released yesterday.

The bank attributes this to limited competition in the market for cross-border payments, among other factors. It also finds that banks, which are the most expensive remittance service providers, are often the only channel available to African migrants.

The World Bank says bringing remittance prices down to five per cent from the current 12.4 per cent average cost would put $4 billion (Sh350 billion) more in the pockets of Africa’s migrants and their families who rely on remittances for survival.

The G8 and G20 – the richest countries in the world – have established five per cent as the target average remittance price to reach by nest year. But the Bank estimates the average cost of sending money to Africa as almost 12 per cent higher than global average of 8.96 per cent, and almost double the cost of sending money to South Asia, which has the world’s lowest prices (6.54 per cent).

Open markets

Massimo Cirasino, Manager of the Financial Infrastructure and Remittances Service Line at the World Bank urged governments to implement policies to open the remittances market up to competition.

“Increased competition, as well as better informed consumers, can help bring down remittance prices,” Cirasino said.

A regulatory environment that encourages competition among remittance service providers can also help bring down remittance prices. Migrant workers can also benefit from more transparent information on remittance services.

“High transaction costs are cutting into remittances, which are a lifeline for millions of Africans,” said Mr Gaiv Tata, the Director of the World Bank’s Africa Region and Financial Inclusion and Infrastructure Global Practice.

He pointed out that remittances play a critical role in helping households address immediate needs and also invest in the future, so bringing down remittance prices will have a significant impact on poverty.

Tata said lower cost remittances will 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.

Social spending

It is estimated more than 120 million people in Africa rely on remittances from the Diaspora, with most of this money traditionally going to social spending, including school fees for siblings, food, and medicine.

Diaspora cash accounts for a significant chunk of the gross domestic product of most African countries. It ranges from 3.4 per cent and 3.8 per cent for Egypt and Kenya to 24 per cent and 25 per cent for Lesotho and Liberia.