Impacts of COVID-19 decrease remittances to Africa

Impacts of COVID-19 decrease remittances to Africa

A World Bank report released today April 22, 2020 says remittances to sub-Saharan Africa have decreased slightly, by 0.5 percent, between 2018 and 2019 to remain close to $48 billion.

The report notes that due to the COVID-19 crisis, remittances are expected to decline by 23.1 percent in 2020 to reach $37 billion, while a recovery of 4.0 percent is expected in 2021.

It indicates that as many sub-Saharan migrants are losing their jobs due to an almost complete shutdown of economic activities – especially in the construction, hospitality, and other service sectors – remittances are expected to decline in the coming months.

The Bank points out that the anticipated decline can be attributed to a combination of factors driven by the coronavirus outbreak in key destinations where African migrants reside, including in the European Union (i.e., France, Italy, Spain), the United Kingdom, the United States, the Middle East, and China.

These large economies host a large share of sub-Saharan migrants and are a source of close to one-quarter of total remittances sent to the region, leaving sub-Saharan Africa highly vulnerable to any shocks occurring in these countries, and especially the COVID-19 pandemic.

It explains that remittances are the main source of foreign exchange revenue for the region, and they serve as an important channel for risk sharing in the developing world. But with a covariate shock such as COVID 19 that affects both the recipient and source country, the loss of this important channel will probably lead to further poverty and deprivation, it added.

The report says, as of April 2020, many countries in the Eastern Africa region were experiencing the worst desert locust outbreak in decades. City-sized locust swarms were attacking crops and threatening the food supply of millions of people in the region.

Nigeria, the report says, remains the largest recipient of remittances in the region, and is the sixth-largest recipient among (lower- and middle-income countries) LMICs, with an estimated amount of $23.8 billion received in 2019, an increase of more than half a billion compared with 2018. Ghana and Kenya are ranked a distant second and third in the region, with $3.5 billion and $2.8 billion received, respectively.

South Sudan has recently started reporting remittances in the IMF Balance of Payments statistics; in 2019 it had the region’s highest share of remittances, as a percentage of national GDP, at more than 34 percent. For these countries where remittances account for a large share of GDP, a sharp decline is expected for 2020 as many migrant workers have seen their income plummet, especially in member countries of the Organisation for Economic Co-operation and Development, the report said.

Global remittances, the report notes, are projected to decline sharply by about 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country.

“Remittances to LMICs are projected to fall by 19.7 percent to $445 billion, representing a loss of a crucial financing lifeline for many vulnerable households,” the report said.

According to the Bank, studies show that remittances alleviate poverty in lower- and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in disadvantaged households. A fall in remittances affect families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs.

Commenting, the World Bank Group President, David Malpass said; “Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies.

Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs,” he said.

Meanwhile, the World Bank says it is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affect remittance flows. It is working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor, it added.

“Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5 percent), followed by Sub-Saharan Africa (23.1 percent), South Asia (22.1 percent), the Middle East and North Africa (19.6 percent), Latin America and the Caribbean (19.3 percent), and East Asia and the Pacific (13 percent),” the report stated.

By Emmanuel K. Dogbevi

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