AFTER a slowdown in recent years, Africa is experiencing an uptick in growth. East and West Africa are leading the way: Ethiopia is predicted to grow at 8,5 per cent in 2018 while Cote d’Ivoire and Senegal aren’t far behind at 7,4 per cent and 7 per cent respectively.
However, while southern African countries like Botswana, Namibia, South Africa and Swaziland may lead in measures of human development, the SADC region is one of the slowest-growing regions on the continent, averaging 2,9 per cent in growth.
As southern Africa copes with challenges, from drought to a fall in commodity prices, the region has an ace in its back pocket: remittances. The key to unlocking its growth potential, however, depends on the ability to reduce the average cost of sending money home among its large migrant population which numbers over 3,2-million.
While the SADC region leads in regional integration, the high cost of sending remittances across borders within the region, curtails their transformative impact. Cheaper remittances will boost growth: we know remittances increase when the costs fall and joint UCLA-IMF research shows that higher remittances can boost growth.
Globally, the cost of remittances is dropping annually — that’s the good news. The bad news is that the SADC region has some of the most expensive currency corridors in the world. Put bluntly, it costs R3.20 per kilometre to send a $200 (R2,786) transfer between neighbours South Africa and Botswana, but it costs just R1.11 per kilometre to send from South Africa to India which is over 20 times the distance.
This isn’t just bad for individuals who see hard-earned wages swallowed by excessive fees, but it is also bad for the regional economy. While 90 per cent of transfers from South Africa are destined for neighbouring Zimbabwe, Mozambique and Lesotho, the majority of these transfers are informal. The scale of these unregulated money transfers, with all the insecurity this entails, squanders an opportunity to spur regional economic growth.
According to Finmark Trust, a non-profit funded by the UK’s Department for International Development, SADC migrants living in South Africa remit approximately R16,6-billion home each year — nearly half the GDP of Lesotho.
Bringing down the cost of remittances to the UN Sustainable Development Goal of 3 per cent would unlock a further $44 million (R612-million) for families across the region who depend on remittances for food, education, healthcare and seed capital for new businesses.
Considering the SADC region is the most unequal region in Africa, introducing more convenient, cheaper remittance options can help tackle the region’s inequality.
Sending remittances through formal routes in the SADC region remains persistently expensive because the market has long been dominated by a small group of authorised dealers, banks and money transfer operators that have significant pricing power.
However, the game-changer for customers looking for a better deal has been the expansion of mobile phone use. In economies like Zimbabwe and Swaziland — where access to mobile exceeds 85 per cent — there are new opportunities for digital providers to lower the cost per transaction, particularly for low-value remittances.
The reliance on bank branch networks accounts for nearly 98 per cent of transaction costs, but diversifying the variety of pay-out options can help reduce the cost of sending money for consumers.
These tech-based solutions are particularly beneficial to rural populations. In remote areas, mobile money — and remittances to mobile money accounts — can act as a lifeline and be a stepping stone towards financial inclusion.
The market is most developed in East Africa; in countries like Tanzania and Uganda, nearly 90 per cent of WorldRemit’s rural customers receive funds directly to their phones. In Zimbabwe, two-thirds of the region’s population lives in rural areas and there are more than 12 million mobile subscriptions nationwide.
This means sending transfer direct to a phone from South Africa to Zimbabwe is not only fast and lower-cost but helps narrow the urban-rural divide within the region.
Technology is rapidly transforming African economies. At present, door-to-door remitted cash and goods remain the primary means of sending remittances within the SADC region.
Imagine a world where money can reach loved ones with just a few taps from a phone — reducing not only transfer costs, but the complications of transporting hard-earned money to those who need it most. As electronic transactions in countries like Zimbabwe reach 80 per cent, mobile technology can play a key role in bolstering the impact of remittances in southern Africa and driving regional growth.