Common features of all developing economies are shortages in savings, foreign exchange, government revenue and human capital skills. Given the severe inadequacy in the domestic supply of these factors, migrant remittances have been identified as alternative sources of supply of these critical developmental inputs.
At a national level, remittances boost economic development – helping the efforts to reduce poverty, promote national development, empower communities and promote access to productive resources.
According to the World Bank 2015 Report and Ecofin Agency report published in 2015, one in seven Africans (about 120 million) receive remittances from relatives, friends and families abroad – which thus far represents $60 billion – and as much as a third of total GDP in some African markets.
Remittance income enables recipients to engage in subsistence agriculture and other in-vestment opportunities that directly alleviate the scourge of poverty whilst improving health and education attainments.
In Kenya and Nigeria, for example, investments such as home building, land purchases, and farm improvements (physical capital) account for more than half of the spending. In Senegal more than half of remittance money received is spent on food, education, and healthcare (human capital).
Money Transfer Operators
Money transfer operators (MTOs) dominate the market for transfers from the United States and other European migrant destinations. There are however, fewer than 100 MTOs operating in the entire African marketplace – together comprising almost 90% of all remittance services providers (RSPs).
Of the MTOs, Western Union is by far the most significant market player. As a pioneer this company has been instrumental in creating the international network that has made remittance transfer possible. The impact of Western Union and its services has been felt great afar, especially in Africa where these remittances impact directly on families, societies, communities and nations.
In Senegal, a diaspora sending money through Western Union shared, “Money that is sent back is used for everyday necessities like food, clothing and shelter. Some of the money also goes to support business endeavours of various family members and some some goes to-wards medical expenses. I regularly contribute towards my sister-in-law’s diabetes medications.”
A Kenya small business woman, whose son was left paralyzed by a motor accident and in need of assistance in the form of a wheelchair, felt the impact of Western Union, speedy and responsive service. She was able to receive money from her relative staying in the United States of America using Western Union remittances services. Through Western Union services, not only was she able to pay the high hospital bill, but she was able to buy a proper wheelchair for her son.
Their Impact
Remittances contribute to better health by enabling recipients to pay for needed medicines, have access to healthcare and purchase more food.
Statistics show that in Nigeria and Uganda education ranks as the second-highest use of remittances and recipients have more years of schooling on average – with the majority having at least a high school education.
In addition, funds received from the diaspora provides numerous entrepreneurs with the capital required to get their enterprise(s) off the ground.
Summary
Remittances are a major and stable source of income for people in many developing countries and MTOs like Western Union have made it all possible for diasporas to be able to transfer life changing monies, so deeply needed in their countries of origin.
About the author: Dipolelo Moime, is the founder and CEO of Legato Consultancy Pty Ltd, a dynamic Africa risk advisory, research and management consulting firm in Johannesburg, South Africa. In his capacity he assists multinational corporations with expansion and risk management strategies for Africa and is an expert analysts on various industry topics in Africa. Find him on LinkedIn: Dipolelo Moime.
