AfDB and migrant remittances: a snapshot

The African Development Bank has been examining the issue of migrant remittances for several years.

The African Development Bank’s Migration and Development initiative, launched in 2009 with a view to integrating the Bank’s migration-related activities within a comprehensive common framework, includes a wide series of publications, reports, knowledge dissemination workshops published or undertaken by various departments.

The major initiatives are listed in this section.

“Migrant Remittances: a Development Challenge” Report (2007-2008)

The study is the first one of its kind on migrants’ remittances targeting four countries represented by a large diaspora from francophone African countries, namely the Comoros, Mali, Morocco and Senegal. The study helped assess the amounts transferred, identify the transfer channels of these funds and better understand the logic underpinning their use. It has demonstrated the potentially important role of these resources for development through enhancing investment in African countries.

Building on the findings of this study, an action group comprising France, AfDB, IFAD (International Fund for Agricultural Development) and EIB (European Investment Bank) was established in January 2008 to implement the recommendations.

The Group selected the theme of regulatory frameworks and innovative financial products as a priority action for selected regions. The Maghreb and the franc zone were selected as areas of intervention for the inception work.

Launch of the Migration and Development Fund in 2009

In 2009, the AfDB hosted the Migration and Development multi-donor trust fund in support of its initiative “Migration and Development”.

As a joint initiative by the AfDB and France, the Fund finances activities aimed at improving knowledge on migrants’ remittances in Africa; assisting the reform of regulatory frameworks in order to improve the conditions of transfer; developing new financial products that respond better to the needs of migrants, and supporting the initiatives of migrants in productive investment and local development in their country of origin.

In this sense, it meets the recommendations of the G20 to reduce transfer costs and to promote financial inclusion.

The initial contributors are France (EUR 6 million) and IFAD (USD 200,000).

Capacity building for money transfer operators, 2009

In 2009, the AfDB also initiated and organized a capacity building program for money transfer operators in the central Maghreb and the franc zone countries.

The AfDB initiated the first phase of activity in in the regions of Maghreb and African franc zone in 2009, through Epargne Sans Frontière (Savings Without Borders). Two exchange workshops were organized; first in Casablanca on 16 November 2009 and then in Bamako on 19 November 2009. Financial operators (banks, transfer companies, microfinance institutions), telecom operators and regulators from these regions attended the workshops. These multi-stakeholder workshops enabled the sharing of experiences, tested the first courses of action and also identified the constraints (technological, financial and legislative) for improving the productive use of remittances (savings, insurance, credit).

Whether it is stakeholders, services, tools or new technologies, the report recommends exploring five avenues to develop and strengthen the supply of bank and non-bank products, promote lower transfer costs and promote development. The purpose of the executive summary of the study, “Reducing the costs of remittances from migrants and optimizing their impact on development: financial products and tools for North Africa and the franc zone” is to continue the discussion and exchanges.

Diaspora event during the 2010 Annual Meetings

During its 2010 Annual Meetings held in Abidjan, Cote d’Ivoire, AfDB’s Fragile States Unit organized a workshop on the theme “Mobilizing the African Diaspora for Capacity Building and Development: Focus on Fragile States”.

Speaking at the event, experts shared their experiences on the mobilization of their Diaspora during the 1950-1960 period and even today for their countries’ development. According to testimonies, the Diaspora plays a key role in the building of certain countries. In South Korea, for example, the country’s Diaspora in Japan and the United States played a key role in the country’s industrialization. That is a good example for fragile states that are in search of economic and financial equilibrium.

Africa Economic Brief - Diaspora Bonds and Securitization of Remittances for Africa’s Development – 2010

In December 2010, AfDB’s Research Department published in its periodic bulletin “Africa Economic Brief” a research paper titled “Diaspora Bonds and Securitization of Remittances for Africa’s Development”.

According to the report, Africa, particularly Sub-Saharan Africa remains less diversified in its external resource flows, and depends on official development assistance (ODA) to finance public investment. Innovative finance is crucial to enhance efficiency but also mitigate volatility in the flow of external resources that characterize the traditional sources, including ODA.

“Remittance inflows to Africa were estimated around 37 billion USD in 2010 marking a significant jump from just under 10 billion in 1995 and have overtaken ODA. This figure is significantly understated due to prevalence of informal channels of remittances. Reducing remittance cost as well as increasing transparency in banking transactions could increase official remittances by about 3 billion USD every year over and above the trend,” stated the brief.

On the presumption that securitization of future flows of remittances can generate an extra 2 billion USD annually for African countries, the report has highlighted the enormous potential of Diaspora bonds: “Diaspora Bonds have a rich history of bailing out countries in times of crisis and in some cases financing key development undertakings. Often Diaspora Bonds are long-term in nature only to be redeemed upon maturity, and are relatively cheaper to the issuer. There is little experience in Africa in exploiting Diaspora Bonds, but the potential is enormous. It is expected that close to 10 billion USD could be raised annually from the wealth of the Diaspora.”

The Role of the Diaspora in Nation Building: Lessons for Fragile and Post-Conflict Countries in Africa, report, 2011

In 2011, AfDB’s Fragile States Unit published a flagship report on the role of Diaspora in Fragile States.

State building in an environment of post crisis and/ or post conflict requires urgent measures in the national reconstruction, rehabilitation and economic growth process. It is against this backdrop, that African governments are increasingly recognizing the importance of their citizens abroad or the ‟new African Diaspora‟ in national and regional development.

In light of the fact that the Diaspora can play an important role in recovery and reconstruction of fragile states, the present study aims to elaborate on the available experiences both regionally and globally; drawing lessons from country experiences in involving Diaspora in building domestic institutional capacity; and to inform Bank assistance in implementing national frameworks aimed at strengthening governance, reconstruction and sustainable development.

The study observes that while several African countries and their development partners, including the African Development Bank, have begun efforts to harness contributions of the Diaspora in development, the existing projects are invariably ad hoc in nature and there are no good regional standards to guide these activities or mainstream Diaspora contributions in national poverty reduction strategies or other frameworks. Much more could be done in order to manage contributions of African émigrés for transformational outcomes in national and regional development.

China, Korea, and India are among countries which have shown that Diaspora contributions can significantly help to transform economies. The approaches adopted by these Asian nations point to country-driven initiatives that are built on shared development objectives between the government and the Diaspora, and underlined by comprehensive policies, administrative structures and incentives to foster an enabling environment for mobilizing Diaspora resources (expertise, investments, entrepreneurship and corporate affiliations) around critical growth pillars.

The Diaspora should be considered not just as sources of financing, but as development partners. A stronger relationship between African countries and the African Diaspora is therefore appropriate and urgent.

The recommendations of the study include the following ideas:

  • AfDB can provide technical assistance and financial support for African countries to create the enabling environment for mainstreaming Diaspora contributions in development frameworks for significant economic transitions.
  • Comprehensive national strategies, instead of ad hoc projects are required.
  • AfDB could use its investments guarantee instruments to spur Diaspora financial contributions for entrepreneurship and private sector growth in the region.
  • AfDB’s wide task force on Diaspora and remittances could explore together with the Bank‟s Treasury Department the issuance of Diaspora bonds;
  • Highly-qualified experts in the Diaspora could be engaged without the need for physical relocation, nurtured as networks instead of as individuals, and enabled to render services through virtual interaction.

AfDB-World Bank flagship report “Leveraging Migration for Africa Remittances, Skills, and Investments” – 2011

In March 2011, the African Development Bank and the World Bank launched a flagship joint report titled “Leveraging Migration for Africa: Remittances, Skills, and Investments”.

African migration generates win-win benefits, says the report. Based on data from new surveys, the report finds evidence that suggest migration and remittances reduce poverty in the origin communities. Remittances lead to increased investments in health, education, and housing in Africa. Diasporas also provide capital, trade, knowledge, and technology transfers, says the report.

With about 30 million Africans living outside their home countries, migration is a vital lifeline for the continent. Yet African governments need to do more to realize the full economic benefits of the phenomenon, argues the report.

According to the report, remittance inflows to Africa quadrupled in the 20 years since 1990, reaching nearly $40 billion (2.6% of GDP) in 2010. They are the continent’s largest source of net foreign inflows after foreign direct investment.

Remittance receipts generate large benefits for emigrants’ countries of origin. At the macro level, remittances tend to be more stable than other sources of foreign exchange; their variation is often countercyclical, helping sustain consumption and investment during downturns; and they improve sovereign creditworthiness, by increasing the level and stability of foreign exchange receipts.

At the micro level, both country studies and cross-country analyses have shown that remittances reduce poverty. They also spur spending on health and education, as a result of both higher household incomes and—according to some studies—the devotion of a larger share of remittances than other income sources to these services. In addition, remittances provide insurance against adverse shocks by diversifying the sources of household income. For example, a recent study finds that Ethiopian households that receive international remittances are less likely than other households to sell their productive assets, such as livestock, to cope with food shortages.

International migration has tremendous potential to improve development and welfare in origin countries. African governments can play a significant role in securing the benefits of migration by strengthening ties to diasporas, improving competition in remittance markets, designing educational policies in light of the challenges surrounding high-skilled emigration, and providing information and protection for emigrant workers. But limited fiscal and technical resources in African origin countries constrain the effectiveness of such policies and reduce the gains from migration while exposing migrants to severe risks. African governments also face significant difficulties in managing immigration, which can engender resentment and lead to repressive policies, such as mass expulsions, that impose heavy costs on migrants and disrupt African economies.

Africa is a continent of many small countries, which creates significant pressures for international migration. Africa’s population is smaller than that of India, yet movements of people within Africa cannot occur within a common legal and political framework. This problem implies significant political challenges to governments and higher costs for migrants, who face different legal and regulatory systems, higher fees for remittances, and risks associated with undocumented migration.

Substantial efforts are required to reduce the costs and risks facing African migrants and to improve the benefits of migration to countries in the region.

Economic Brief: “Leveraging Human Capacity and Financing from the Diaspora”, December 2011

In December 2011, AfDB’s Research Department published in its periodic bulletin “Africa Capacity Development Brief” a research paper titled “Leveraging Human Capacity and Financing from the Diaspora: Which Migration Policies for Africa in the 21st Century?”.

According to this research paper, Africans’ emigration is at the center of a dilemma: should African governments encourage emigration to increase the remittances accruable from the Diaspora, as a response to the development financing deficit? Or should they put in place policies to reverse brain drain to reduce the chronic human capacity deficit? How should they strike a balance between the two objectives?

Indeed, Africa loses in excess of 70,000 skilled professionals annually to emigration, resulting in a huge human capacity deficit in the Continent.

At the same time, the remittance inflows from Africa’s Diaspora have increased by 260 per cent in the last decade from US$11.2 billion in 2000 to almost US$40 billion in 2010.

The brief looks into this dilemma and makes some recommendations as to the mobilization of emigrants for the development of their countries of origin.

In its conclusion, the brief says that most Africans in the Diaspora have both the capacity and will to meaningfully take part in the economic, social and political development of the continent. They have three characteristics that position them to make unique contribution to the development of their home country: a strong motivation to make an impact despite and against many odds; knowledge and expertise of both global opportunities and local peculiarities; and the financial resources to take advantage of new opportunities.

When these resources are combined, properly harnessed and effectively exploited, they offer an opportunity for innovative partnerships between the African Diaspora and their local counterparts for a real and sustainable development.

However, an optimal realization of the African Diaspora’s potential as a full-fledged partner in the continent’s development efforts requires an enabling environment, which needs to be strengthened through appropriate policies and programs.

Reducing the costs of migrants’ remittances and optimising their impact on development: Financial products and tools for North Africa and the franc zone, 2012

Published in February 2012, the report “Reducing the costs of migrants’ remittances and optimising their impact on development: Financial products and tools for North Africa and the franc zone” recommends exploring five avenues in order to optimise the impact of migrants’ remittances on development and suggests a series of concrete suitable financial and regulatory innovations.

The results of this study, led by Epargne Sans Frontière (ESF), were presented during an international seminar organized in Paris, which brought together 150 decision-makers in the financial sector, including Central Banks. The participants praised the efforts of the AfDB and its partners and called for the sharing of the report’s innovative findings, which met the expectations of the parties involved in money transfers – including the Diaspora communities and the financial middlemen. At that time, the AfDB was asked to organize workshops in the countries covered in the report in addition to hosting a pan-African meeting on the subject. In 2012 and 2013, working sessions were held in the target countries outlined in the report. Two workshops were held in France: one addressing the needs of Diaspora communities, the other destined for financial institutions.

On March 27 and 28, 2014, a pan-African seminar was held in Tunis. The meeting aimed to address the recommendations put forward by the ESF study in terms of innovative financial initiatives, many of which had been re-examined during the country-based workshops. The most notable concerns raised were reducing the high costs of migrant money transfers to the African continent, financial inclusion and better access to banking services.

Did you know

Remittances reached US $65 billion in 2013, an increase of 5% compared to 2012. Remittances from the diaspora should reach US $67 million in 2014.

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