FINANCING Africa’s public and private sector projects has always been an expensive business. The outbreak of Covid-19 has put a tremendous strain on access to finance in an already stretched environment. As leaders explore solutions for Africa’s recovery, the importance of new thinking, creativity, particularly in sustainable financing for Africa’s businesses, should be a priority for all stakeholders, writes Agnes Gitau.
Covid-19 has challenged international co-operation and globalisation. Africa’s development partners also challenged by the pandemic, have little choice but to prioritise their resources to their economies equally faced with disruptions. Already scarce and conditional development finance will therefore be hard to come by.
It is therefore imperative for governments and institutions to creatively tap into the diaspora remittance, channelling the funds to critical sectors that require financing most.
You probably heard this a million times, but I repeat it here, Africans in the diaspora contribute at least $48bn to the continent’s gross domestic product — significantly more than the $47bn that the region receives from foreign direct investment (FDI) and the $50bn it receives in aid.
These funds play an important role in supporting everyday costs, and unlike foreign aid and FDI, diaspora remittance goes directly to where it is needed most and directly to households for domestic purposes: ranging from food and school fees for siblings to health care for relatives and new homes for ageing parents.
The World Bank published a report last year predicting a decline in diaspora remittance, noting the economic shocks in remittance corridors, but as figures show, the remittance tap is unlikely to run dry as Africans continue to send money back home because, as President Nana Akufo famously said, ‘The place of the diaspora, the status of the Africans in the Diaspora is intimately linked with what happens in the continent, a progressive Africa, transforms the status of Africans in the diaspora.’
In addition, diaspora investments are also a veritable source of investment capital into sectors that are chosen by the diaspora. In contrast to foreign direct investments or Eurobond and other overseas borrowing, diaspora investments come at no cost or charge to the recipient countries, and what’s more important is that the funds focus on local production, services, etc that generate jobs locally, boost local knowledge, increase government revenue and help reduce the country’s volume of imports.
The funds are less likely to be misspent as compared to the misappropriations and legendary inefficiencies in the foreign aid industry. Diaspora remittance funds, as gifts of love, are better focused on building the family and hence the nation. The distribution of these diaspora remittance funds is far more efficient than ODA funds since these monies go directly to paying school fees, building houses and growing businesses.
Kenya has been ranked 3rd in Africa in terms of diaspora remittance inflows, projected to reach $ 2.9bn this year after Nigeria and Egypt.
In February 2021, Kenyans in the diaspora, despite the challenges of Covid-19 in the developed economies, sent home $260.2 million, 19 percent more than the $219 million remitted last year, according to the latest data by Central Bank of Kenya.
The rise in diaspora remittance can be attributed to demands from home. Kenyans have been greatly affected by the pandemic and those who are lucky can call on their relatives for support. In a snap survey of around 1,000 Kenyans by GBS Africa, the demand for diaspora to support relatives meet healthcare bills has risen in the past one year. This could be linked to the impact of Covid-19.
As much as remittance contributes to development, a discussion on how to avoid our kinsmen being caught up in the dependency cycle, similar to what Africa has experienced from foreign aid must be had.
In the 12 months to February 2021, the cumulative inflows rose to $3.155bn, a 11.4 percent increase from $2.831bn in the 12 months to February 2020.
Nigeria is the 2nd largest destination of diaspora remittance in Africa after Egypt. More than 1 million Nigerians abroad send home $24bn annually to support their families. This is equivalent to 6.1 percent of Nigeria’s GDP. The remittance is seven times more than annual foreign aid and 11 times more than the FDI to the country, according to report by PwC. Nigeria diaspora remittance if channelled and reinvested wisely, could add value and contribute to development in Nigeria as well as address the forex crisis.
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Agnes Gitau is the managing Partner at advisory services firm GBS Africa, her work focuses on providing political and economic risks advisory for businesses operating in East and West Africa.