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Consumer Economy Eats Up Diaspora Remittances

Remittances to East African countries and the rest of the continent are yet to make an impact on economic development despite rising to billions of dollars over the recent years.

Lack of structured plans to channel this money to vital areas of the economy has been identified as the biggest source of inefficiency of the remittances.

An expert panel discussing ways to improve the impact of remittances in Africa prior to the 5th Joint Annual Meetings of the Africa Union Ministers of Economy, Finance and Planning and Development, largely agreed that the $40 billion remitted to Africa annually went to the “consumer economy” mostly to buy food and therefore, not playing any key part in boosting other areas of the economy.

United Nations Under Secretary-General Abdoulie Janneh said that more needed to be done to reduce the cost of transfer of remittances to African countries for the same to have a considerable effect on the continent’s development. A study by the International Fund for Agricultural Development showed that this cost was as high as 25 per cent of the amount sent, a deterring contributor to the flow of remittances to the continent. Money sent to Kenya, for example, cost slightly over 13 per cent just almost similar to Uganda (11 per cent). Rwanda ranked the highest with 15 per cent.

Mr Janneh, also the executive secretary of the UN’s Economic Commission of Africa, asked representatives to draft concrete ways to curb the high costs described by participants as discouraging to would-be money senders.

Kenya’s Assistant Minister for Finance Oburu Odinga said the country received almost as much money as that generated by the tourism sector but he revealed that more had to be done to allow the remittances into the formal economy where it was easier to quantify and utilised for the nation’s good.

Tanzania’s Finance Minister Mustafa Mkulo said his country was using its embassies abroad to attract its diaspora citizens to “invest in various sectors back home” but added that it was not easy considering that the foreign offices lack active networks with the migrants.

On how to convert the remittances into a tangible resource that could be relied on to uplift recipient economies, Don Terry, a consultant with the World Bank, said the best way was to “provide recipients with many options to put their money.” He said this will change the idea that the money is only for consumption.

“If these people are able to save a bit, they would be told of the availability of loans accessible through their savings,” Mr Terry, also an expert in remittances matters, said.

According to the Central Bank of Kenya, remittances to Kenya amounted to $89.8 million in January 2012, which was 40 per cent higher than the level in January 2010. CBK added that the average remittances inflow in the year to January 2012 amounted to $76.4 million up from $55.1 million recorded in the year to January 2011. In average Kenya received about $900 million (Ksh92 billion) from the diaspora community in 2011.

This huge contribution seems to have pushed CBK to provide a formal programme to harness this huge financial contribution. CBK governor Njuguna Ndung’u said the diaspora infrastructure Bond offered by the government was to encourage the diaspora to investment in the country’s infrastructure.

“We thought of giving them (Kenyans living abroad) a special package that could allow them to put their money in development programmes in the country. That is why we came up with the infrastructure bond,” Prof Ndung’u said while contributing to the topic “Eurozone Crisis: impact and lessons for Africa.” This was welcomed by the panellists who saw Kenya’s idea as among the ways in which money from abroad could be harnessed for development.

Meanwhile, Kenya has submitted a request to host the soon-to-be established African Institute for Remittances. The country quoted its huge economic benefit from remittances as its key reason behind the interest in being the host of the Institute.

“Remittances is the second foreign exchange earner and therefore plays a key role in our economy. We are keen on hosting the institute and we are ready to put in place necessary mechanisms to fast-track its operations” said Kenya’s Minister for Planning Wycliff Oparanya when he presented the request.

auritius, Djibouti and Egypt will compete with Kenya in this endeavour. The conference of ministers adopted a resolution towards the establishment of the Institute, which will among other things assist African central banks to “improve collection of data on remittance flows, enhance the ability of non-bank financial institutions to offer remittance services and facilitate efficient payment systems across the continent.”

Source: The East African

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