PHILLIP ISAKPA IN LONDON, UK
The size of Africa’s remittance market has been projected by analysts to reach $500 billion in 2035 but concern still remains over the expensive nature of remittance fees to the continent compared to other parts of the world.
Analysts at investment bank, DAI Magister, say the growth projection for remittances primes the African remittances market as a potential attraction for investment.
Remittances have become a major part of Africa’s growth story as they make contributions to yearly revenues of countries and form a key component of their gross domestic product (GDP).
In an analyst note by DAI Magister and seen by Business a.m., Risana Zitha, managing director and head of Africa, said that looking ahead, the growth of remittances in Africa is expected to continue.
He wrote: “Looking ahead, the growth of remittances in Africa is expected to continue. Based on the CAGR of 12.1% between 2019 and 2022, the formal African remittance market, valued at $100 billion in 2022, could potentially reach $283 billion by 2035.”
When you add the value of the informal market of remittances to Africa, according to Zitha, the projection reaches $500 billion by 2035.
“The informal remittance market is estimated to be between 35% and 75% of the total value of formal channels, with sub-Saharan Africa experiencing a higher proportion of informal transactions than the global average. As a result, the total remittance market in Africa could be worth $500 billion by 2035,” he further wrote in a note to Business a.m.
With mobile money increasingly taking centre stage, Zitha said this shift will bring a wave of innovation, lower remittance costs and propel the market to new heights.
But concern persists over the high fees of remittances to Africa, which he said increased competition, stakeholder collaboration and investment in financial infrastructure can all contribute to lowering global remittance fees.
He noted that remittances make up a significant portion of African GDP with the total value of remittances across the continent reaching nearly $100 billion in 2022, $20 billion of which was intra-African flows.
But concern is beginning to grow over the cost of sending money to Africa amid the importance of remittances to African economies.
“The cost of sending money to the continent remains very high. The UN Sustainable Development Goals state that remittance fees should be less than 3% by 2030, but data from the World Bank suggests that at present the global average is twice this target, with the figure as high as 20% in some parts of sub-Saharan Africa,” the DAI Magista’s head of Africa wrote.
The present situation, notwithstanding, Zitha said that mobile money has emerged as a game-changer in tackling the challenge of high remittance costs in Africa. In this regard, he expects increased mobile money interoperability, better financial literacy and streamlined legal frameworks to further drive down fees across the region.
“To fully capitalise on the opportunities in the continent’s remittances sector, stakeholders must collaborate to address the challenges and barriers that hinder growth and development. Reducing remittance costs should be a primary focus, which can be achieved by promoting competition, improving regulatory frameworks and investing in financial infrastructure. This will allow remittance providers to offer more affordable services, benefiting both senders and recipients and contributing to economic growth and development,” Zitha wrote.
Furthermore, the analyst note stated that “improving access to digital remittance services,” represents another crucial aspect, adding that “while mobile money has made significant strides in Africa, there is still room for expansion. Governments and private sector stakeholders should invest in digital infrastructure, such as mobile networks and internet connectivity, to ensure that more people can access digital remittance services. Promoting financial literacy and education can also help individuals understand and trust digital remittance channels, encouraging adoption and usage.”
Sub-Saharan Africa’s current acute hard currency shortages makes it important to have the ability to harness remittance flows, Zitha said, noting that by addressing the challenges and barriers, and leveraging the opportunities presented by technology and innovation, Africa can harness the transformative power of remittances for sustainable development and economic growth.
