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Southern Africa growth stalls – can remittances save us?

by Andrew Stewart, MD for MEA, WorldRemit

After a slowdown in recent years, Africa is experiencing an uptick in growth. West and East Africa are leading the way: Ethiopia is predicted to grow at 8.5% in 2018 while Cote d’Ivoire and Senegal aren’t far behind at 7.4% and 7% respectively. However, while Southern African countries like Botswana, Namibia, South Africa and Swaziland may lead in measures of human development, the SADC region is one of the slowest-growing regions on the continent, averaging 2.9% in growth.

As Southern Africa copes with challenges, from drought to a fall in commodity prices, the region has an ace in its back pocket: remittances. The key to unlocking its growth potential, however, depends on the ability to reduce the average cost of sending money home among its large migrant population which numbers over 3.2 million. While the SADC region leads in regional integration, the high cost of sending remittances across borders within the region, curtails their transformative impact. Cheaper remittances will boost growth: we know remittances increase when the costs fall and joint UCLA-IMF research shows that higher remittances can boost growth.

Globally, the cost of remittances is dropping annually – that’s the good news. The bad news is that the SADC region has some of the most expensive currency corridors in the world. Put bluntly, it costs R3.20 per kilometre to send a $200 (R2,786) transfer between neighbours South Africa and Botswana, but it costs just R1.11 per kilometre to send from South Africa to India which is over 20 times the distance. This isn’t just bad for individuals who see hard-earned wages swallowed by excessive fees, but it is also bad for the regional economy. While 90% of transfers from South Africa are destined for neighbouring Zimbabwe, Mozambique and Lesotho, the majority of these transfers are informal. The scale of these unregulated money transfers, with all the insecurity this entails, squanders an opportunity to spur regional economic growth. 

According to Finmark Trust, a non-profit funded by the UK’s Department for International Development, SADC migrants living in South Africa remit approximately R16.6 billion home each year – nearly half the GDP of Lesotho. Bringing down the cost of remittances to the UN Sustainable Development Goal of 3% would unlock a further $44 million (R612-million) for families across the region who depend on remittances for food, education, healthcare and seed capital for new businesses. Considering the SADC region is the most unequal region in Africa, introducing more convenient, cheaper remittance options can help tackle the region’s inequality.

Click here to read about how rural areas would benefit from tech-based solutions.

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