Posted by: Armel | January 20, 2009

Africa’s Imported Wealth

                 remittance

A must read argument ( from Le Monde Diplomatique ) on the impact of remittance from the African Diaspora. But this is not just another reminder of it’s importance, actually it explores the limited impact and sometimes disruptions of remittance on African economies.

In any African country, “human capital is much more valuable than financial capital,” says Ravinder Rena of the Eritrea Institute of Technology, “because it is only a nation’s human capital that can be converted into real wealth. Given the status quo, Africa would stay poor even if we were to send all the money in the world there”.  At present, the world’s 200 million migrants send home more than $300bn every year; African migrants send $20bn, and the remittance flow to Africa has increased by 55% since 2000.

The Bretton Woods institutions (the IMF and World Bank) and western governments are interested in these Africa-bound billions. According to many official reports, this money is a more reliable source of finance than private sector investment or even official development aid – and, for some African countries, remittances are the equivalent of 750% of foreign aid.

The money sent home by Cape Verde’s diaspora provides 25% of its economic activity. The national bank of Ghana estimates that remittances home equal 20% of the value of its exports. These migrants may not have travelled far: 30% of Lesotho’s gross domestic product comes from nationals working in neighbouring South Africa (the chief destination for inter-African migration).

The phenomenon is most clearly seen in Nigeria, home to the continent’s best and worst. One in five African migrants is from Nigeria. They lead a commercial and entrepreneurial network from São Paolo to Houston, London to Dubai, Delhi to Hamburg. In the last decade, Nigerians living abroad have sent $28bn to family and business associates back home. In 2007 more than $3bn was wired home, according to the World Bank. Nigeria receives 30% of the funds transferred via Western Union in sub-Saharan Africa.

 

First Bank, which holds the Western Union franchise in Nigeria, has opened more than 200 agencies there, dedicated primarily to transferring funds. “Business is hectic from the moment we open in the morning to the moment we close,” says Bola Adebanjo, a branch manager. “It is definitely our bank’s principal activity.” Keen to mine this, other Nigerian banks have teamed up with money transfer companies, as the United Bank for Africa and the US company MoneyGram did in 2007.

A collective strategy

“Africa must develop a collective strategy for engaging the diaspora [and] Nigeria has a special role to play in this enterprise,” says the former US ambassador to Nigeria, Howard Jeter. “There is a wealth of financial, technical and intellectual expertise in the diaspora. Africa needs to exploit these human and material resources to help tackle the challenges of development, environmental degradation, food security, energy supply, HIV/AIDS and equitable economic growth”. The message is clear – that migrant workers can best help their home countries. But the West, which has the wages of these workers circulating through its banks, makes countries pay for their own development and pockets a percentage.

A joint report by the African Development Bank (ADB) and the French finance ministry published in January 2008 studied five countries “that share strong historic and migratory links with a developed country – France.” The survey of 2,000 African households, which looked at Senegal, Mali and the Comoros among others, found that in 2005, $600m had been sent in remittances to Senegal (19% of GDP and 218% of ODA). Mali received $394m (11% GDP, 79% ODA) and the Comoros $94m (24% GDP, 346% ODA). Households that got the money had a higher standard of living than the national average.

But do these remittances have any real impact at the macro economic level? The renewed interest in African remittances obscures a fact obvious to Jean-Pierre Garson, a migration specialist at the OECD (Organisation for Economic Cooperation and Development): “Their impact on development is unclear, especially if one considers the loss of manpower that emigration means for these countries.” Remittances do help to lift those left at home out of extreme poverty. But they also foster a state of dependency. Only a small proportion of these funds goes into wealth-generating activities. According to Ravinder Rena: “Remittances fail to enhance development because they are not spent on investment goods but mostly spent on unproductive purposes – housing, land purchase, transport, repayment of debt, or to a smaller degree wasted on conspicuous consumption, or saved as insurance and old age pension funds”.

Daily living expenses can take up 75 to 80% of remittances and the rest goes towards the dream goal of building a house. In Ghana this feeds property speculation, according to researchers: “Purchases by emigrant workers cause prices to spiral and means local people with modest means have less access to property… landlords are more inclined to sell to those living abroad than to locals, especially since migrants can pay higher prices, and in cash”.

Productive use of money

Redirecting remittance funds towards long-term investment projects, encouraging a “more productive” use of this money, is one of the declared aims of France’s new development and immigration policies. The French government believes channelling remittance funds into projects in health, education and business will encourage would-be immigrants to stay at home (an objective of France’s July 2006 immigration law). Savings banks will offer a special “co-development savings account” benefiting from a 25% tax break, open to all immigrants with a French residence permit who want to invest in their home countries – starting a new business, reviving an old one or buying one out, acquiring premises, investing in the rental market, or micro-finance. Another initiative, the co-development savings book, will “allow immigrants to set up a savings account, on which they will enjoy tax relief if they use the funds for investment purposes”.

Armand Adotevi, a legal expert from Benin, mocks the duplicity of the authors of these proposals: “They realise there is a bonanza to be reaped and invested for the short or medium term, for the benefit of the French economy. They try to con us with talk of tax exemption, and doubling or tripling of interest accrued on savings, and lecture us on what is good for us. In this way they circumvent their own responsibilities for aid and development. Have you ever seen African governments telling private European citizens, operating legally in Africa, how they should spend the substantial profits they repatriate to Europe?”

These proposals perpetuate the inequalities of the global financial system, while providing an excuse to those who won’t fund development aid. They free international financial institutions and the dominant powers from responsibility for the world’s ills by placing the burden on the poor. Poverty will not be eradicated by the remittances of migrant workers, merely reduced. And the financial crisis may sharply reduce remittances anyway.

By Anne-Cécile Robert and Jean-Christophe Servant

Advertisements

Responses

  1. A,
    When you think about it, remittances funds are not that different from the profits that Western Corporations repatriate to their countries of origins, are they? The main differences being their status ( corporation vs individual) and the amount (billions or millions vs couple of thousand). The fact of the matter is that African governments ( or even private entrepreunors…so far anyway) fail to provide incentives for immigrants to properly re-direct the use of that money into income producing entities. Think about it, when Western companies repatriate their earnings to their countries, those are re-invested in their economies through their banking system. Unfortunately such a system has not been established and maintained ( to my knowledge) long enough for immigrants and their countries to take advantage of it. The only example I can think of is the the Senegalese Bank, Bank de L’Habitat du Senegal who opened a branch in New York in 1994 to received remittance funds and assist Senegalese immigrants ( or anybody for that matter) in purchasing real estate in Senegal, while paying back the mortgage in the U.S.

  2. @ Yohan,
    Your assessment on the equivalence of wealth repatriation is absolutely valid. It goes both ways to say the least. I also think that without channeling those funds into some countries, their economy wouldn’t be able to sustain any upward pressure on local prices.

    The Senegalese example you gave is not alone in West Africa. Ghana did the same trough a set of government policies which in turn also created the current inflation on property prices there.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: