In a recent report by the World Bank titled ‘Remittances Remain Resilient But Are Slowing,’ it was revealed that Nigeria played a pivotal role in Sub-Saharan Africa’s remittance landscape for the year 2022.
The report indicates that the continent received an estimated $52.9 billion in remittances during that year, with Nigeria alone contributing $20.1 billion, accounting for a significant 38 percent of the total inflow.
This surpasses the contributions from other key African nations like Ghana (11.9 percent), Kenya (8.5 percent), Tanzania (25 percent), Uganda (17.3 percent), and Rwanda (21.2 percent).
These funds have served as a financial lifeline for nations grappling with issues such as food insecurity, supply chain disruptions, droughts in the Horn of Africa, and flooding in countries like Nigeria, Chad, Niger, Burkina Faso, Mali, and Cameroon. Remittances have also been instrumental in helping countries manage debt-servicing challenges.
Taking a broader perspective, the report indicates that remittances to low- and middle-income countries (LMICs) worldwide reached $647 billion, with a projected increase of 1.4 percent to $656 billion expected in 2023.
The global remittance total is expected to reach $840 billion in 2023, with further growth anticipated in 2024, adding an additional $18 billion.
Highlighting the significance of remittances, the World Bank points out that over the past year, these funds have outpaced other external sources of finance for LMICs, including foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows. This trend becomes even more apparent when excluding China from the analysis.
The report also emphasises that remittances have become the primary source of foreign exchange earnings in several countries.
For instance, in Kenya, remittances now surpass the country’s major exports, including tourism, tea, coffee, and horticulture. Other countries, such as the Gambia, Lesotho, Comoros, and Cabo Verde, heavily rely on remittance receipts as a proportion of their GDP.
Despite the positive impact of remittances, the report highlights that Sub-Saharan Africa continues to face the highest remittance costs globally.
The average cost of sending $200 to African countries in the last quarter of 2022 was 8.0 percent, up from 7.8 percent in the same period the previous year. Costs vary significantly across the region, ranging from 2.1 to 4.0 percent in the lowest-cost corridors to a staggering 17 to 35 percent in the highest-cost ones. Banks are identified as charging the highest fees, underscoring the importance of promoting cross-border mobile money transactions.
However, limited interoperability among telecom operators and money transfer operators has hindered such transactions in countries like Kenya, Rwanda, Tanzania, and Uganda.
Looking ahead, the report projects a slowdown in the growth of remittances into Africa, with an expected decrease to 1.3 percent in 2023 compared to the 6.1 percent growth witnessed in 2022.
Potential risks to this outlook include capital outflows, foreign exchange controls, and sanctions. South Africa, for example, was placed on a “gray list” by the Financial Action Task Force (FATF).
Nevertheless, a recovery in remittance flows is anticipated, with a growth rate of 3.7 percent expected in 2024, according to the World Bank.
