In a recent report, remittance flows to Sub-Saharan Africa in 2023 reached $54 billion, marking a slight decrease of 0.3 percent from the previous year.
This moderate growth reflects slower growth in the United States and a weak rebound in Europe. The economic growth rate in key remittance-sending regions, which includes Canada, Europe, and the United States, is forecasted to decline slightly from 1.6 percent in 2023 to 1.5 percent in 2024.
Despite this decline, remittance in the Sub-Saharan region is projected to rise by 1.3 percent in 2024. The continent is reportedly facing a funding squeeze, amplified by a reduction in Official Development Assistance (ODA) as a percentage of GDP.
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In 2023, remittance flows to the region were nearly 1.5 times the size of Foreign Direct Investment (FDI) flows, and relatively more stable. FDI to the region reached $38.6 billion, driven primarily by greenfield project announcements in Kenya and Nigeria.
Key Recipients and Impact of Remittances in Sub-Saharan Africa
In the sub-Saharan African region, Nigeria emerged as the country with the largest recipient of remittances in 2023, measured in US dollars, followed closely by Ghana, Kenya, and Zimbabwe.
It is worth noting that in several other African countries, remittances have become the most important source of foreign exchange. For example, in Kenya, remittances surpass the country’s key exports, including tourism, tea, coffee, and horticulture.
On the other hand, there are also countries more dependent on remittances as a proportion of GDP, including the Gambia, Lesotho, Comoros, Liberia, and Cabo Verde, with remittances contributing more than a fifth of GDP in the first three countries. The regional growth in remittances in 2023 was driven by significant increases in Uganda (15 percent to $1.4 billion), Rwanda (9.3 percent to $0.5 billion), Kenya (2.6 percent to $4.2 billion), and Tanzania (4 percent to $0.7 billion).
However, remittances to Nigeria, which accounts for around 35 percent of total remittance inflows to the region, decreased by 2.9 percent to $19.5 billion. It is however interesting to note that Sub-Saharan Africa remains the region with the highest remittance costs globally.
In Q4 2023, the average cost to send $200 to African countries was 7.9 percent, up from 7.4 percent in 2022. Notably, intra-regional remittance costs also remain very high, for example, sending $200 from Tanzania to Kenya, Uganda, or Rwanda cost over 33 percent in Q4 2023.
Banks charge the highest costs, highlighting the importance of cross-border mobile money transactions. Limited interoperability among telecommunications and money transfer operators in Kenya, Rwanda, Tanzania, and Uganda further constrains these transactions. A notable development in April 2024 was an agreement between Kenya’s M-PESA and Onafriq, Africa’s largest digital payments network, to facilitate remittances to Ethiopia.
The growth of remittances to Sub-Saharan Africa is projected to recover slightly from a decline of 0.3 percent in 2023 to an increase of 1.5 percent in 2024. Risks to this outlook include lower-than-expected growth in developed countries, which could reduce remittances sent by the African diaspora, an escalation of the Israel-Gaza conflict disrupting supply chains, security risks in several African countries, and climate risks such as severe drought in southern Africa.
Conflicts in the region have increased cross-border movements. The conflict in Sudan is reported to have created a large flow of displaced populations, with 6.8 million internally displaced persons and 1.9 million forcibly displaced in neighboring countries.
In summary, while remittances to Sub-Saharan Africa face challenges, they remain a crucial financial lifeline for many countries in the region. Therefore, efforts to reduce remittance costs, improve regulatory frameworks, and enhance financial inclusion remain very crucial and essential to support this vital economic flow.