Tuesday, April 16, 2024

Massive remittance drop signals alert for Tanzania’s economy

Sub-Saharan African diaspora remittances have surpassed and almost doubled the Foreign Direct Investment. Remittance flows to sub-Saharan Africa were recorded as USD 48 billion in 2019, but the accurate total is likely to be significantly larger. Nigeria alone received about half of the total remittance flows to sub-Saharan Africa.

Kenya is the forerunner of diaspora remittances in East Africa, with Tanzania dovetailing only topping Burundi, according to the East Africa Community assessment of the World Bank report. This discussion paper maps the remittance disparities in the EAC, seeks to probe why Tanzania is lagging despite enjoying a population boom, and recommends some remedial measures on how Tanzania can sort out this sad situation.

Global Impact of Diaspora Remittances

Remittances to low and middle-income countries (LMICs) withstood global headwinds in 2022, growing an estimated 5% to USD 626 billion. This is sharply lower than the 10.2% increase in 2021, according to the latest World Bank Migration and Development Brief.

In 2023, remittance flows to LMICs were estimated to have reached USD 669 billion as resilient labour markets in advanced economies and Gulf Cooperation Council (GCC) countries continue supporting migrants’ ability to send money home.

Remittances are a vital source of household income for LMICs. They alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children in disadvantaged households.

Studies show that remittances help recipient households build resilience, for example, by financing better housing and coping with the losses in the aftermath of disasters. Petty crimes associated with necessity are also subdued as family incomes flourish, eroding the incentive to commit such offences.

Remittance flows to developing regions were shaped by several factors in 2022. A reopening of host economies as the COVID-19 pandemic receded supported migrants’ employment and ability to continue helping their families back home. On the other hand, rising prices adversely affected migrants’ actual incomes.

Kenya Shilling extends gains against the US Dollar

Also influencing the value of remittances is the appreciation of the Russian ruble, which translated into higher value, in U.S. dollar terms, of outward remittances from Russia to Central Asia. In the case of Europe, a weaker euro had the opposite effect of reducing the U.S. dollar valuation of remittance flows to North Africa and elsewhere. In countries that experienced scarcity of foreign exchange and multiple exchange rates, officially recorded remittance flows declined as flows shifted to alternative channels offering better rates.

By region, Africa stands to be the most severely exposed to concurrent crises, including severe drought and spikes in global energy and food commodity prices. Remittances to Sub-Saharan Africa are estimated to have increased 5.2% in 2020 compared with 16.4% in 2019.

Total Sub-Saharan Africa FDI, according to the World Bank, in 2022 was USD 30.66 billion. However, Statista says that in 2022, Sub-Saharan African countries received remittances valued at an estimated USD 53 billion. By 2023, the value increased to USD 54 billion. The region saw the most significant increase in 2021 after the coronavirus pandemic led to a substantial decline in 2020. In general, the economies of fragile countries are more dependent on remittances.

Also reported in the Brief is the cost of sending USD 200 across international borders to LMICs, which remains high at 6% on average in the second quarter of 2022, according to the Remittances Prices Worldwide Database. It is cheapest to send via mobile operators (3.5%), but digital channels account for less than 1% of total transaction volume.

Digital technologies allow for significantly faster and cheaper remittance services. However, the burden of compliance with Anti-Money Laundering/Combating the Financing of Terrorism regulations continues to restrict access of new service providers to correspondent banks. These regulations also affect migrants’ access to digital remittance services.

Remittances to Sub-Saharan Africa, the region most highly exposed to the effects of the global crisis, grew an estimated 5.2% to USD 53 billion in 2022, compared with 16.4% in 2021 (due mainly to solid flows to Nigeria and Kenya). Remittances in 2023 were projected to soften to 3.9% growth as adverse conditions in the global environment and regional source countries persist.

Remittances as a share of GDP were significant in the Gambia (28%), Lesotho (21%), and Comoros (20%). Sending $200 to the region cost 7.8% on average in the second quarter of 2022, down from 8.7% a year ago. Remitting from countries in the least expensive corridors averages 3.4% compared to 25.2% for the costliest corridors.

The current information on the EAC remittances from the World Bank indicates that Partner States rose from 5,495,480,000 in 2017 to 9,399,804,228 in 2022 (World Bank Data, 2022). The region will, therefore, need to develop mechanisms to ease the cost of the transfer of remittances to boost EAC Partner States economies.

Based on the Tanzanian shilling, the distribution of diaspora remittances within the East Africa region is as follows:

Kenya (10 Trillion), Somalia (4 Trillion), DRC (3.2 Trillion), Uganda (3 Trillion), South Sudan (2.7 Trillion), Rwanda (1.3 Trillion), Tanzania 791 Billion) and Burundi (114 Billion).

Why There Are Discrepancies in Diaspora Remittance Within The EAC?

Numbers of Diaspora Employees Matter

Logic and common sense instruct us that the more people a nation has in overseas labour markets, the more likely diaspora remittances will increase. This fact is also seen in the EAC.

According to the UN Migration, by 2019, the EAC diaspora stood at 737,000 people, of whom Eritrea (49,000), Ethiopia (256,000), Kenya (153,000), Somalia (115,000), Uganda (44,000), Zimbabwe (21,000) and others (99,000). Tanzania was not explicitly mentioned but was lumped into “others,” signifying poor record keeping or fewer people in the diaspora.

The above diaspora demographics show why countries like Kenya are pacemakers in the diaspora remittances. They have the numbers, and regrettably, we do not.

Dual Citizenship Rights Enhance National Loyalty

Countries like Kenya have embedded the dual citizenship rights of their diaspora in their constitution. However, in Tanzania, there is a misplaced fear of the unknown from doing the same. Our official position has always been to defend “vacuous loyaltyas if the two have any meaningful correlation.

The diaspora does not feel valued by our government, and they are unlikely to invest meaningfully when they know the government is busier legislating them into second-class citizens in their motherland! If loyalty is the genuine concern, our advice has always been to etch residence requirements in the qualifications for public office but resist tampering with the bonafide citizenship rights of the diaspora. We are missing out big time when a parochial political calculus usurps strategic economic interests.

Easiness and Low Cost of Money Transfers

Money transfers are another area attracting the ire of the diaspora. Our mobile and traditional banking systems are still years behind to take advantage of this ever-growing market. What surprises me most is that initiatives such as “wave.com” are foreign-sourced, and local initiatives to create similar apps that simplify money transfers have yet to take a serious footing.

Foreign money transfers are limited to less than one grand, constraining money movement. Then there is government excessive greed, as seen in transaction taxes, that discourages remitters and their recipients from injecting serious cash into our measly economy.

Attractiveness of Investment Alternative Offers

Kenya has established a ministry to deal with challenges facing the diaspora from those seeking overseas employment by providing official sources of such opportunities on a website to advise them on prime investment areas in their country. Time and time again, I have been asked by former classmates, friends, and relatives living and working abroad what the best investment opportunities in Tanzania were, and my reflex answer used to be money markets.

Not anymore, as interest payments have plummeted to cover inflation with no recoup for the risk taken or/and loss of the next best-lost opportunity. With commercial interest payments slashed from 13% to 5% per annum, the incentive to put money in fixed deposits is all but a goner. Land investments are plagued by the vagaries of land use and official graft, and few will venture there.

But of damning indictment, there is no official concerted effort by the government to channel diaspora remittances into productive sectors. Few Regional Commissioners have been attempting to fill the gaps here and there, but we need a ministry to deal with the challenges the diaspora industry brings.

In conclusion, we have traced the potentiality of the diaspora remittances globally, in Sub-Saharan Africa and within the EAC to show how Tanzania has a long way to catch up. We have prescribed several urgent measures; we need to vigorously pursue the opportunities available in this fast-growing industry, which include establishing a website explicitly dealing with issues of employment and investment opportunities while at the same time addressing challenges confronting the diaspora, including monitoring their welfare in foreign countries.

We have also suggested introducing low-cost digital platforms to facilitate money transfers above one grand per transaction. Dual citizenship is highly recommended to make the Tanzanian diaspora feel valued and cared for by their people. What are we waiting for?

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