Monday, April 27, 2009

African diaspora remittances dry up in global recession

REPORTS are starting to creep into the African media about how thousands of families may no longer be able to feed themselves, pay school fees or build houses because of a dwindling flow of money from Western countries that has been helping to keep Africa afloat.

No, it is not aid we are talking about here but money generated by Africans for Africans. Remittances, worth billions of dollars a year to the continent, are starting to decline as Africans working in Western markets start to feel the pinch of the global financial crisis.

A recent World Bank report said remittance inflows to developing countries could fall this year by anything between one percent and six percent from last year, which would have a marked effect on communities in Africa.

The report suggests that shrinking economies will also lead to anti-immigrant hostility, further affecting the employment of foreigners in Western countries.

The amounts developing countries gain from remittances are staggering. The World Bank says that, in 2005, remittances to developing countries, dominated by flows to China, India and Mexico, totalled 188billion (about R1.8 trillion) – twice the amount of aid to these countries.

The figures for Africa are relatively small but rising rapidly, reaching anything from 20bn to 40bn in 2007, depending on whose figures you believe. In sub-Saharan Africa, Nigeria has traditionally been the biggest recipient (officially 3.3bn in 2007), followed by Kenya (1.3bn) and Senegal (900m). It is generally accepted that the real amounts are at least double official figures because so much of the money moves through informal channels.

The money has given poor economies a boost, providing funds for food and services, start-up business capital, education and other essentials governments have failed to provide. It has created the impression, in some cases, that governments are doing a better job than they actually are.

Zimbabwe is a classic example. Remittances last year were estimated at anything up to US1bn, supporting more than half of all households. While the government claimed credit for the economy’s survival, remittance money was key to keeping Zimbabweans going and feeding critical foreign exchange into the moribund economy.

A familiar pattern is evident in many other countries, such as Somalia, Eritrea and Liberia.

Even African success stories, such as Ghana, are still benefiting from remittances, as their nationals continue to live abroad despite improvements back home.

A recent trend has Africans in the diaspora investing their money back home in property and businesses, with a view to returning one day, rather than just providing a cushion for extended families.

In Senegal, officials maintain that the current housing boom is funded to the tune of 30 percent by diaspora money.

However, many of the countries high on Africa’s remittances recipient list rate poorly on the United Nations Human Development Index, suggesting that remittance inflows have not generally promoted sustainable economic growth. Most remittance money is used for consumption spending and has, in some instances, discouraged recipients from getting jobs or creating businesses. For every success story, there are other stories of families exploiting their remittances to live a lifestyle they could not otherwise afford. Large numbers of people in Africa surviving on one person’s contribution from abroad also suggest the money is too widely dispersed to be of real long-term value.

Governments are looking for ways to capture these dispersed funds for development.

Kenya, for example, is putting together a policy in this regard, while diaspora bonds have also been mooted. However, the mistrust of the State by many Africans, particularly those who have left because of their governments, means they are reluctant to let officialdom tap into their hard-earned money.

Despite the potential, remittance money tends to keep economies ticking over rather than helping to move them to the next level. It is often said that African countries do not need more money; they just need to use what they have more efficiently. Never has it been more urgent for this to happen.