Remittances: Africa’s
Growing Market

Many analysts and observers expected remittance flows to decline significantly when borders closed during the COVID-19 crisis. However, the World Bank’s officially recorded remittance flows to low- and middle-income countries reached USD540 billion in 2020, just 1.6% below 2019’s total of USD548 billion. Flows to sub-Saharan Africa declined by 12.5%.

However, that global decline in recorded remittance flows was much smaller than the 4.8% drop seen during the 2009 global financial crisis. And, interestingly, according to the World Bank the decline was also “far lower than the fall in foreign direct investment flows to low- and middle-income countries, which, excluding flows to China, fell by [more than] 30% in 2020”.

Again, though, it’s the personal, familial aspect that made all the difference. “Foremost among the drivers of remittance flows and reasons behind their resilience during the [COVID-19] crisis was migrants’ desire to help their families, to send money home by cutting consumption or drawing on savings,” the World Bank noted.

Fenwick expects African remittance flows to recover and grow in the coming years, driven by regional adoption of digital technologies.

“The biggest complaint regarding remittances is the cost and time to send money back home, with fees as high as 20% in some cases,” he says. “For years the market was dominated by money transfer operators (MTOs) who relied on their physical footprint to be effective. This resulted in fixed costs being quite high to maintain. In recent years, however, digital innovation has seen a number of competitors come into this space, with fintechs, mobile operators, banks, technology companies and MTOs all vying to offer cheaper, more transparent, real-time payments that solve those customer pain points.”

Added to that, the World Bank has set a target of limiting the charges on remittances to no more than 5% by the year 2030.

“Digital innovation and tougher competition have brought about massive improvements in this space over the past 10 years,” says Fenwick. “In the coming five to 10 years we expect to see exponential growth in the range of apps and platforms that remittance senders will have at their disposal. They will also have more options to disperse to, from bank accounts to mobile wallets, virtual wallets and so on. This will take remittances into markets that have very little coverage today, fuelling even further growth.”