Why remittances work better than aid
Remittances sent home by Africans working abroad are a better basis for future development than aid, Adams Bodomo argues
No one knows the exact amount of remittances Africans send home, since not all of it goes through official channels. World Bank figures show that remittances to different regions in Africa hover between 1 percent and 5 percent of gross domestic product (GDP), with west Africa receiving around 4 percent of its GDP in remittances. Total remittances to Africa stood at $60bn in 2012, up from $41.6bn in 2011.
These figures show that the more than 140 million Africans working outside the continent are sending far more money to Africa than the development aid funds received from
international donors. In fact, in 2012 official development aid to sub-Saharan Africa totalled $44.6bn.
The amount of money remitted back to Africa is bound to grow because of the formation of new diasporas in economically fast developing countries such as China, Russia, India and Brazil. Currently, more than 70 percent of the remittances that flow to Africa south of the Sahara comes from the West, but it is expected that a growing percentage will be sourced from expanding African communities in places such as China.
Data obtained from interviewing African diaspora members in China indicate that Africans send home anywhere from 10,000 to 100,000 yuan ($1,600-$16,000) per person annually. If every one of the half million Africans plying their trade in China were doing this, Africans in China would be sending home anywhere between $800m and $8bn a year.
Foreign remittances have a great advantage over foreign aid funding in that these funds go directly to their targets. Of course, there have been cases in which family remittance monies have been wasted or misappropriated, but this is nothing compared to the legendary inefficiencies in the foreign aid industry. Official development assistance (ODA) and other types of foreign aid funds have been known to be misappropriated at both governmental and nongovernmental levels
Estimates show that in some cases less than 10 percent of ODA funds actually benefit the most vulnerable populations, the other 90 percent or so enter the pockets of government officials and even foreign aid workers who are sometimes paid huge sums to live like kings in the midst of the poverty they are supposed to eradicate.
A second advantage of remittance funds is that they are, for the most part, devoid of conditions. African diaspora remittances are gifts of love to develop the family by paying school fees, building houses and growing businesses. Foreign aid funds in most cases attract interest, even
if the rate is low. But more importantly a lot of conditions are imposed by donors, such as the need for structural adjustment programmes, public sector deregulation, privatisation and even demands for the overhaul of a country’s political system. Foreign aid can thus be used as a neo-colonial tool to influence the socio-economic and socio-political decision-making processes of the recipient countries.
Even though remittances are used mostly for family consumption while foreign aid funds such as ODA are used for public service delivery, remittances go further in improving the general welfare of citizens than foreign aid, given the latter’s dismal record in funds mismanagement.
More should be done to harness the potential of remittance flows. First, African governments do not seem to have robust policies to attract African diaspora remittances. Currently, few Africans abroad are allowed to vote in home elections, let alone be consulted over vital economic decisions. One way to draw more remittance funds to Africa is to involve diaspora communities more in the political system of the countries.
Second, it is also surprising that some Western financial institutions have reacted in ways that can hinder the flow of diaspora funds to people in need. One such way is to use the excuse that remittances can be diverted – and have been – to finance terrorism in parts of Africa such as Somalia.
The potential of remittances to drive African growth is huge. It is time the international community harnessed them.
Adams Bodomo is professor of African studies at the University of Vienna
The original version of this article appears in the new issue of The World Today, published by Chatham House
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