The cost of money in Africa and the attendant risk factors have seen the use of diaspora quickly become a viable financing option for economic development as was underscored by finance experts at a recent remittances forum in Tunis, the capital of Tunisia.
With close to 250million migrants around the world sending home about $400billion, African Development Bank President Donald Kaberuka called for increased transparency of prices and service features as these would allow consumers to make informed decisions. This would subsequently foster more competitive and safe market for remittances.
Besides finding solutions on how to leverage the remittance opportunity, financial experts also grappled the challenge of finding solutions to the high cost of sending money.
Studies show that about 12 per cent of diaspora money sent through formal financial channels is swallowed up by bank fees. Governments, especially in Sub Saharan Africa have been challenged to find ways of reducing the costs of remittances so that more funds can get to the people who need them.
In Uganda, the average remittances per year between 2008 and 2012 amounted to about $800million, exceeding official aid which averaged $538million according to Bank of Uganda.
Because diaspora funds flow directly to its intended recipients, they often have a direct positive impact on poverty reduction. With remittances a generally more stable source of capital than private capital are appreciating the urgency of gearing migrant remittances towards substantial development.
Latest statistics show that the average cost of sending money to Africa in the second quarter of 2013 was almost three percentage points (2.94 per cent) more expensive than the global average cost for the same period which measured at 8.85 per cent, according to the World Bank.
Recent statistics reveal that remittances to Africa out strip Western aid with the current standing at about $60billion in comparison about $40billion dollars from Western aid. But the figures on remittances could be more given that about 60 per cent of remittances are sent using informal means.
Jeanne Nzeyimana, Funds coordinator at the AfDB said reforms need to be carried out by public authorities to reduce the cost of remittances. She said there is more success on remittances statistics in the Maghreb region compared to Sub Saharan Africa, arguing that solid legal frameworks and registration system are key to capturing data on remittances.
Sufficient data on remittances is critical to formulating remittance related policies that can translate into faster reduction and economic growth.
The financial experts also urged Central Banks to move beyond ensuring stabilization of the financial system to facilitating mobilization of funds for economic development.