Why Remittance Flows to Sub-Saharan Africa Dropped in 2020

World Bank Government

The World Bank says the drop in remittance flows to Sub-Saharan Africa in 2020 was solely driven by the reduced inflow into Nigeria.

However, Diaspora remittance flows to Nigeria last year defied the prediction of the Bank. The flows nose-dived by 28%.

In a new report, the World Bank said remittance flow to Sub-Saharan Africa fell 12.5% to $42 billion in 2020.

Other countries in the region reported an uptick as the Bank reckoned that remittance flows remain strong during COVID-19 crisis despite the pandemic-induced economic lockdown.

Low- and middle-income countries, according to the report,  received $540 billion in 2020, which was $8 billion less than 2019 receipts despite the pandemic.

In spite of the rampaging COVID-19, remittance flows remained resilient last year, registering a smaller decline than previously projected, the World Bank group states.

“Officially recorded remittance flows to low- and middle-income countries reached $540 billion in 2020, just 1.6 percent below the 2019 total of $548 billion, according to the latest Migration and Development Brief.

“The decline in recorded remittance flows in 2020 was smaller than the one during the 2009 global financial crisis (4.8 percent)”.

It was also far lower than the fall in foreign direct investment (FDI) flows to low- and middle-income countries, which, excluding flows to China, fell by over 30 percent in 2020.

As a result, World Bank stated that remittance flows to low- and middle-income countries surpassed the sum of FDI ($259 billion) and overseas development assistance ($179 billion) in 2020.

The report said the main drivers for the steady flow included fiscal stimulus that resulted in better-than-expected economic conditions in host countries, a shift in flows from cash to digital and from informal to formal channels, as well as cyclical movements in oil prices and currency exchange rates.

The true size of remittances, which includes formal and informal flows, is believed to be larger than officially reported data, though the extent of the impact of COVID-19 on informal flows is unclear.

‘As COVID-19 still devastates families around the world, remittances continue to provide a critical lifeline for the poor and vulnerable,’ said Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank.

‘Supportive policy responses, together with national social protection systems, should continue to be inclusive of all communities, including migrants.’

However, remittance flows fell for East Asia and the Pacific (7.9 percent), for Europe and Central Asia (9.7 percent), and for Sub-Saharan Africa (12.5 percent).

World Bank said the decline in inflows to Sub-Saharan Africa was almost entirely due to a 28 percent decline in remittance flows to Nigeria.

“Excluding flows to Nigeria, remittances to Sub-Saharan Africa increased by 2.3 percent, demonstrating resilience”, it added.

Remittance inflows rose in Latin America and the Caribbean by 6.5 percent, South Asia 5.2 percent and the Middle East and North Africa 2.3 percent.

“The relatively strong performance of remittance flows during the COVID-19 crisis has also highlighted the importance of timely availability of data”, the report said.

World Bank said given its growing significance as a source of external financing for low- and middle-income countries, there is a need for better collection of data on remittances, in terms of frequency, timely reporting, and granularity by corridor and channel.

‘The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support,’ said Dilip Ratha, lead author of the report on migration and remittances and head of KNOMAD.

‘They can no longer be treated as small change. The World Bank has been monitoring migration and remittance flows for nearly two decades, and we are working with governments and partners to produce timely data and make remittance flows even more productive.’

The World Bank said it is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affects remittance flows.

Also, the group said it is working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.

“With global growth expected to rebound further in 2021 and 2022, remittance flows to low- and middle-income countries are expected to increase by 2.6 percent to $553 billion in 2021 and by 2.2 percent to $565 billion in 2022”, it added.

Even as many high-income nations have made significant progress in vaccinating their populations, infections are still high in several large developing economies and the outlook for remittances remains uncertain.

It noted then that the global average cost of sending $200 remained high at 6.5 percent in the fourth quarter of 2020, more than double the Sustainable Development Goal target of 3 percent.

The report reads that average remittance costs were the lowest in South Asia (4.9 percent), while Sub-Saharan Africa continued to have the highest average cost (8.2 percent).

Experts noted that supporting the remittance infrastructure and keeping remittances flowing includes efforts to lower fees.

“Remittances to Sub-Saharan Africa declined by an estimated 12.5 percent in 2020 to $42 billion. The decline was almost entirely due to a 27.7 percent decline in remittance flows to Nigeria, which alone accounted for over 40 percent of remittance flows to the region.

“Excluding Nigeria, remittance flows to Sub-Saharan African increased by 2.3 percent”, the report stated.

Remittance growth was reported in Zambia (37 percent), Mozambique (16 percent), Kenya (9 percent), and Ghana (5 percent). In 2021, remittance flows to the region are projected to rise by 2.6 percent, supported by improving prospects for growth in high-income countries.

“Data on remittance flows to Sub-Saharan Africa are sparse and of uneven quality, with some countries still using the outdated Fourth IMF Balance of Payments Manual rather than the Sixth, while several other countries do not report data at all”, the report said.

Meanwhile, in terms of remittance costs, Sub-Saharan Africa remains the most expensive region to send money to, where sending $200 costs an average of 8.2 percent in the fourth quarter of 2020.

Within the region that experiences high intra-regional migration, it is expensive to send money from South Africa to Botswana (19.6 percent), Zimbabwe (14 percent), and Malawi (16 percent).

 

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