eBusiness Weekly
Taking Stock Kudzanai Sharara
For poor countries and regions, remittances are easily the difference between a family affording and not being able to afford food, healthcare and basic needs.
They are also the most important buffer for unexpected life expenses and investments into a better future.
Globally, remittances peaked at US$706 billion in 2019 with sub-Saharan African getting US$48 billion.
Zimbabwe is one of those countries where remittances act as a safety net contributing at least 13,5 percent to the GDP, according to the World Bank.
In Zimbabwe, remittances often exceed Foreign Direct Investment (FDI) and official development assistance (ODA) flows.
Official figures show that diaspora remittances amounted to US$635 million in 2019 or 9,21 percent of total foreign currency receipts.
The World Bank, however, estimates that at least US$1,7 billion was remitted to Zimbabwe in 2019.
South Africa, United Kingdom and Botswana, in that order, are the major sources as millions of Zimbabwe’s citizens’ working as migrant labour there.
However, the coronavirus pandemic has become a major threat to all this with the World Bank projecting a significant decline in remittances of not less than 20 percent across the globe. Sub-Saharan Africa is expected to see a 23,1 percent decline.
In the short term the biggest challenge on the flow of remittances is that sending and receiving remittances is not straightforward.
Many Zimbabweans, in South Africa for example, were used to the use of informal channels such as cross border buses and trucks to send money home, but during the ongoing mobility restrictions sending cash remittances has become a mission.
In the long term, migrants working in hotels, restaurants, and salons have lost their jobs, without potential government support in the host nation.
Those who manage to continue working — in United Kingdom health care, for example — may struggle to send money amid shutdowns.
Zimbabwe could be worse affected as remittances are likely to be frayed by job losses in the service sectors most reliant on migrant workers. These include the restaurant and hospitality sector.
South Africa’s Finance Minister Tito Mboweni put this into perspective when he said close to 100 percent of jobs in the restaurant business are occupied by foreigners.
He suggested that restaurants will prioritise taking more South African employees than foreigners when the lockdown ends.
“Any establishment wanting to reopen must have a new labour market policy which prioritises South Africans.
“The proportion of South Africans working in a restaurant must be greater than that of non-South Africans,” Mboweni was quoted saying.
Zimbabwe has a huge population in South Africa and if Mboweni’s suggestion is to be implemented it will leave a
huge dent on Zimbabwe’s remittances’ flows.
Even without such drastic measures, these industries will take a while before the industry can return to normal.
The big question is, however, on what can be done to alleviate the plight of beneficiaries of remittances.
Economists at World Bank suggests digital financial services cannot only make sending and receiving easier, but can also reduce the bite of fees into payments through technology-enabled scale.
As of the end of 2019, the global average cost of remitting $200 was 6,82 percent or $13,64. Key remittance-sending countries have made pledges to reduce this cost in the last decade or so. Sustainable Development Goal (SDG) 10.c.1 aims to reduce this cost to $6 on average by 2030.
Below are further recommendations made by Alfonso Garcia Mora, Global Director, Finance, Competitiveness & Innovation Global Practice and Michal Rutkowski, Global Director for Social Protection and Jobs, World Bank.
Over the medium-term, recovery of remittance flows will be largely dependent on the success of the economic stimulus efforts of the G20 and other net-remittance-sending countries and broader migration and labour market dynamics. Targeted efforts to support migrant communities in host countries are also urgent.
Over the near term, the World Bank recommends the following actions to support the remittances sector:
Public authorities should treat remittance service providers as essential services and mitigate any operational impacts to their functioning.
Public authorities should support the remittances industry with appropriate instruments to manage their credit and liquidity risks effectively.
Over the medium term, the World Bank recommends the following key actions to accelerate the efforts to reduce remittance prices to respond to the challenges of widespread unemployment and the plight of migrant communities in host countries:
Embrace the new emerging remittance models, which enable originating and disbursing remittances through digital means, suitably addressing regulatory and infrastructure barriers.
Support universal financial access in receiving countries and amongst migrant workers in sending countries.
Enhance domestic retail payment systems promoting interoperability and fast payment services and enable leveraging these for remittances.
Enhance AML/CFT compliance in receiving countries by strengthening regulatory capacity for enforcing these regulations and support development of Digital ID solutions.
Support development of comprehensive integrated cross-border payment solutions for MSME trade flows, ecommerce and remittances.
