Leveraging remittances for recovery and resilience post-COVID-19

Prince Oppong KWATENG

The International Day of Family Remittances

The International Day of Family Remittances is the United Nation’s (UN) adopted day, observed on 16 June each year. This is in recognition of the over 200 million migrant workers who send money for the wellbeing of their families in their home countries.

It is globally recognized and a key initiative in the Global Compact for Safe, Orderly and Regular Migration (Objective 20) of the UN, which seeks to promote faster, safer and cheaper transfer of remittances and foster financial inclusion of migrants; boost the reduction of transfer costs and greater financial inclusion through remittances. This is particularly important for the drive to achieve ‘no poverty’, which stands as the first goal of the Sustainable Development Goals (SDGs) of the United Nations.

The observance of this day is globally championed by the International Fund for Agricultural Development (IFAD), an international financial institution and a specialized agency of the UN that works to address poverty and hunger in rural areas of developing countries.

This year’s observance deserves recognition of the commendable efforts of migrants, especially those from the sub-Saharan Africa region, who have boosted remittances to the region, while supporting immensely the high demonstration of resilience to cope with the global COVID-19 pandemic. In view of this, the Programme Migration & Diaspora (PMD) of the German Development Cooperation (GIZ) in Ghana, is organizing a multi-stakeholder dialogue event to mark the observance of the day on 16th June 2021.

The GIZ – Programme Migration & Diaspora (PMD), commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ), has the objective to leverage migration and diaspora engagement to achieve development goals. The recognition of the important role of migrants and remittances in the development discourse forms the conviction for the yearly observance of this day.

Relevance of remittances

The term ‘remittance’ derives from the word ‘remit’, which means ‘to send back’. The World Bank refers to remittances as “cross-border person-to-person payments”. It is the portion of migrant workers’ earnings sent home to their families and friends as well as business payments.

Sometimes, these flows are not in the open, leaving them mostly uncounted or even ignored, although others pass through formal channels and are well captured in calculations. Popular among the various means of remittances include wire transfer/ bank transfer, cash pickup, mobile money and home delivery.

As remittances form part of the ways that migrants can contribute to the growth and development of their countries of origin, migration as a phenomenon cannot be excluded from any form of discourse that focuses on remittances. The International Organization for Migration (IOM), the United Nation’s main agency responsible for migration, delineated migrant as a person who moves away from his or her place of usual residence, whether within a country or across an international border, temporarily or permanently, and for a variety of reasons. Africa’s migration has been characterized to be predominantly intraregional.

The fluid migration within Western Africa, for instance, is partly due to the region’s status as a geopolitical and economic unit, but also to a common history, culture and ethnicity. There is also significant international migration to former European colonial powers such as France, the United Kingdom, the Netherlands, Italy, Germany and Spain, among other countries.

Migration is not a bad thing when viewed holistically, the key factor for determining the positives or negatives associated it, is the means adopted by the migrant for the journey. It tends to be a good thing when the principles of the Global Compact for Safe, Orderly and Regular Migration is followed.

Both the World Bank and the International Monetary Fund (IMF) predict the importance of remittances for low- and middle-income countries as a source of external financing, to strengthen in 2020. The World Bank’s Migration and Development Brief 34 reports that the decline in recorded remittance flows in 2020 was smaller than the one during the 2009 global financial crisis (4.8%).

The same document reported that Remittances flows also exceeded the sum of Foreign Direct Investments (US$259 billion) and overseas development assistance (US$179 billion) for the year 2020. The formally recorded remittance flows to low- and middle-income countries reached US$540 billion for 2020, representing a 1.6 percent below the 2019 total of US$548 billion. Remittance flows to low- and middle-income countries are predicted to increase by 2.6 percent to US$553 billion in 2021 and by 2.2 percent to US$565 billion in 2022 as the World Bank expects rebound of global growth for those years.

The trend so far

The trend of remittance flows to sub-Sahara Africa has shown significant points worthy of underscore. According to the World Bank’s Migration and Development Brief 34 (May 2021 release), remittance flows to the sub-Sahara African region were estimated to decline by 12.5 percent for year 2020.

This estimated decline was attributed almost entirely to a 27.7 percent decline in remit­tance flows to Nigeria, which has always been the powerhouse of remittance flows since the phenomenon gained attention. Nigeria exclusively accounted for over 40 percent of remittance flows to the region. Remittance flows to sub-Saharan Africa as at total unit without Nigeria, increased by 2.3 percent, signifying resilience at a time of global crisis. This shows a strong influence of the decline in Nigeria on the total for the entire region.

Notably, some countries in the Sub-Sahara African region recorded significantly appreciable growth in their remittance flows. This includes Zambia with the highest at 37 percent, Zimbabwe followed with 31 percent, 16 per­cent for both Mozambique and Somalia, followed by Kenya’s 9 percent, and Ghana with the least of the growths at 5 percent. This is also captured in the same World Bank’s Migration and Development Brief 34 (May 2021 release).

In the case of Ghana, the remittance inflow was estimated to be about US$3.8 Billion in 2018, and US$3.2 Billion in 2019 as per the World Bank estimates. In 2020, Ghana’s remittances inflow was estimated as US$3.6 Billion, representing about 4.8% of GDP, according to IMF and the World Bank.

With the value of remittance flows into developing countries staying on the ascendency in recent years, it requires to be appreciated with the relevant attention that it deserves, to leverage their outcomes. At the micro level, they continue to be a major source of lifeline financial support for many families and individuals in both rural and urban communities of low- and middle-income countries, including Ghana.

They serve as additional source of income, helping households to increase spending on essential goods and services, investment in healthcare and education. While primarily meeting these immediate family and basic livelihood needs, a significant portion are also available for savings, credit mobilization and other forms of investment such as working capital. Remittances continue to set the foundation for households to build their assets, enhance access to financial services and investment opportunities, and ultimately build capabilities to lower incidences of extreme poverty.

The role of remittances to poverty alleviation as well as the impact on development is thus demanded to gain significant recognition. This is seen, therefore, as one of the world’s largest poverty alleviation efforts as they reach millions of individuals at a time and could also become a much more efficient contribution to grass-roots sustainable socio-economic development.

It is particularly the story for many through the current pandemic crisis and into the recovery. Remittances also support growth at macroeconomic level of the countries. The potential ripple effect on macroeconomic growth and investment is also substantial. They come across as less volatile than other private capital flows and are comparatively stable through the business cycle.

According to the World Bank’s Migration and Development Brief 34, the steady flow of remittances has mainly been driven by fiscal stimulus that resulted in more favourable economic conditions in host countries than expected, as switch to more digital rather than cash and a move from informal to formal channels.

Another as reported was the cyclical movements in oil prices and currency exchange rates. This accentuates the significance of the role that the policy makers and implementors play as stakeholders. The right policies should be made actionable and timeously to ensure that the fullness of benefits that remittances present, will be achieved.

Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank has stated: “As COVID-19 still devastates families around the world, remittances continue to provide a critical lifeline for the poor and vulnerable,” he added that “Supportive policy responses, together with national social protection systems, should continue to be inclusive of all communities, including migrants.” Policies that remove bottlenecks in the transactions of remittances and set enabling environment for businesses to thrive, encourage ‘diasporans’ to turn home with their investments.

Impact of COVID-19 on remittances

Remittance flows to the Sub-Sahara Africa were affected by the COVID-19 pandemic, by restricted mobility measures and the employment situation in the main host countries. Notwithstanding the adverse heavy and ripple impact of the COVID-19 crisis on all facets of life, the comparatively strong performance of remittance flows has also projected the necessity of timely availability of data.

Notably it keeps gaining grounds and growing in crucial significance for providing external financing sources for low- and middle-income countries. With such great importance and recognition, it instigates a needful cause of action for better collection of data on remittances pertaining to frequency and reporting timeously reporting.

Dilip Ratha, World Bank Lead Economist, and lead author of the report on migration and remittances stated that “The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support,” He further indicated that “They can no longer be treated as small change. The World Bank has been monitoring migration and remittance flows for nearly two decades, and we are working with governments and partners to produce timely data and make remittance flows even more productive.”

Having such effectively collected and reliable data in place could help reduce the magnitude of informality in the remittances flow as well as eradicate misleading information to realize the actual rather big size to migrants’ remittances. It would guide all stakeholders of remittances, migration and development to appreciate the enormous contributions of regular migration and remittances better. It will suffice to assert that the growth that the various countries other than Nigeria experienced, could have been superior, if not for the disruption of the pandemic.

Lessons/Way Forward

The experiences of COVID-19 present the world with lessons and drive to think through the landscape of socio-economic phenomena such as remittances, regular migration, diaspora engagements and investment. This could be done in this ripe time to be characterized by consultative interactions among the key stakeholders in the migration and remittances sector to identify the strategies targeted at building and solidifying partnerships towards innovative approaches that ensure remittances are serving the core purpose of supporting the recovery process of a pandemic-hit-economies.

It is crucially needful to explore and firm up the various innovative mechanism in addressing issues related to digitalization, fintech and innovation while leveraging them and their associated elements for socio-economic recovery. How can Ghana make the most of digitalization trends to leverage the impact of remittances (e.g. via cheaper, faster transfers and via investment, savings and small business promotion)? This owes to the fact that many of the players of remittance flows to Ghana offer digital and technological means of transferring money using mobile money and mobile applications.

A wide range of service providers operate in the market, and there has been considerable growth in the number of digital players offering remittance services. This is at both sending end, where transactions are initiated, and the receiving end in Ghana, where the transaction is terminated. With the introduction of the Payment Systems Services Act in 2019, Ghana’s remittances services have significantly improved, with many players entering the market through technological innovations.

It behoves on all stakeholders, to uphold the collective responsibility of ensuring that remittances get smoother and better to set the platform for leveraging their core offers for global socio-economic development. All and sundry should be incentivised by the resultant benefits of remittances, to promote this agenda while allowing it to resonate among the rank and file of all relevant organizations in a similar fashion as being commemorated today.

>>>The author is a Technical Advisor responsible for Business Ideas for Development and Remittances for the Programme Migration & Diaspora at GIZ Ghana. He can be reached via [email protected]

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