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By Liwaaddine Fliss
This year, in her video message marking the International Day of Family Remittances, Cristina Duarte, the United Nations Special Adviser on Africa, recognizes the critical role of remittances in supporting millions of families across the continent. “For many, they are the difference between survival and destitution, between going to bed on an empty stomach and having a meal,” she said.
Remittances serve as a vital lifeline for more than 200 million Africans. Beyond supporting the lives and livelihoods of families in the senders’ countries of origin, these transfers represent solidarity and symbolize the generosity and resilience of the African community on the continent and beyond.
In 2023, Africa received $100 billion in remittances, equaling nearly 6 per cent of the continent's Gross Domestic Product (GDP) and exceeding Official Development Assistance (ODA) amounting to and Foreign Direct Investment (FDI) of .
The International Day of Family Remittances (IDFR), celebrated on 16 June annually, spotlights the importance of remittances sent home by African migrants and diaspora communities while highlighting challenges that need to be addressed for the continent to leverage the full benefits of these contributions.
Remittances are instrumental in advancing global development goals by providing stable income that addresses basic needs, improving food security, healthcare access, quality education, and contributing to women’s economic empowerment.
They also stimulate economic growth, support sustainable agriculture, and help to reduce inequalities. These contributions align with multiple Sustainable Development Goals (SDGs), notably SDGs 1, 2, 3, 4, 5, 8, 10 and 13.
Governments and their partners must tackle infrastructure and policy-related challenges to fully harness remittances' potential to drive economic growth and accelerate Africa's development. These include high transfer costs, heavy reliance on informal channels, stringent regulatory barriers, underdeveloped financial sectors, limited financial inclusion, and inadequate technological infrastructure.
The Cost of Remittance Services
This year’s IDFR theme, “Digital remittances towards financial inclusion and cost reduction,” outlined the game-changing potential of digital remittances and the challenges that impede their growth. It also highlighted the ongoing collaboration to enhance the affordability and convenience of digital remittance services and their impact on transforming cross-border transactions.
The cost of digital remittances remains high. For example, in 2023, the average cost of sending money through mobile applications to Africa was around 5 per cent, although it was lower in West Africa, at approximately . In addition to digital remittances, other approaches to lowering these transfer costs exist, including blockchain technology, streamlining and automating the remittance process, and minimizing the need for intermediaries.
Nevertheless, digital remittances, particularly mobile money, have emerged as the most cost-effective way for families to send and receive money. The development of user-friendly mobile applications compatible with basic smartphones in many African countries, fuelled this growth, expanding the reach of digital remittance services to areas lacking traditional banking infrastructure.
This provides opportunities to guide local communities on financial management, empowering them with knowledge about saving, investing, and other financial best practices. Digital remittances, therefore, are reinvested into these communities, funding small businesses or infrastructure projects, stimulating economic activities, and creating jobs. Partnerships between money transfer operators and local financial institutions allow unbanked individuals to access other financial services, such as credit, insurance, and savings accounts.
The Digital Leap Forward
Despite this progress, informal and cash transfers remain prevalent, and the digital divide persists. Vulnerable members of the population, especially in rural areas, still face barriers to accessing digital remittances and financial services. There is a pressing need to fully leverage the developmental potential of digital remittances, making them more affordable, accessible, and integrated into a broader ecosystem of financial services that uplift communities and economies.
The digital leap forward is as much about technology as it is about fostering an inclusive and prosperous environment. While transforming the landscape of cross-border money transfers, digital remittances have a central role to play in this. These digital remittances are propelled by several key enablers.
First, technological infrastructure is the backbone of this transformation. Governments should prioritize investments in robust digital infrastructure to support the seamless operation of remittance services.
This includes expanding internet access, enhancing cybersecurity measures, and fostering innovation in financial technologies, such as support to startups and fintech companies that offer innovative solutions like mobile wallets and blockchain-based transfer systems – tools that cater to the needs of the remittance market.
Then, governments must foster an environment conducive to the continuation and growth of digital remittances, enacting policies and regulations that encourage competition while ensuring consumer protection.
Diaspora engagement is similarly vital, as remittances are often driven by the needs of communities abroad and migrants with strong ties to their countries of origin. As mentioned in the policy paper Remittances In West Africa: Challenges and Opportunities for Economic Development, new platforms could be created to encourage dialogue, provide incentives for formal remittance channels and inform about their impact on development.
By capitalizing on these enablers, digital remittances are poised to become even more integral to the global economy while providing a lifeline for millions of African families to accelerate the continent’s progress. Embracing digital advancements, cultivating strategic partnerships, and overcoming barriers to accessibility and cost-effectiveness are essential steps toward ensuring that remittances remain a source of hope and a driving force for sustainable growth in Africa.