Migrant labor remittances in Africa : reducing obstacles to developmental contributions

For many African households and nations remittances are a tremendously important source of finance and foreign exchange, helping to stabilize irregular incomes and to build human and social capital. Remittance receivers are typically better off than their peers who lack this source of income. At the national level, remittances have a substantial effect on the balance of payments and on foreign exchange revenues. Yet remittance flows for Africa are heavily underreported and, to date, remain in the backwaters of academic study. Fewer than two-thirds of African countries (and only one-third of Sub-Saharan countries) report remittance data. Flows through informal channels are not captured at all. The documented benefits of remittances would be even greater if the substantial unrecorded flows were estimated and taken into account. This preliminary analysis of migrant remittances in Africa is based on a review of widely dispersed data and documentation. Its purpose is to stimulate and inform discussions of the role remittances play in African economies and to help stakeholders design appropriate policy interventions. By exploring the actual and potential links between remittances and development, we identify obstacles that limit the potential for greater contributions. The study finds that throughout Africa, financial and monetary policies and regulations have created barriers to the flow of remittances and their effective investment. A few governments, recognizing the valuable contributions of remittances, have facilitated foreign exchange transactions or provided investment incentives such as matching grants. More could be done, however, especially in the context of the regulation of the financial industry. Restrictive licensing of money transfer services, for example, limits access to remittances and restricts the potential impact of remittances in many areas. Other regulations and policies create unattractive environments for investment and block improvements in financial services. Removing those obstacles-and broadening and adapting relevant financial products and services, such as savings and investment options-would boost remittance flows and raise their impact on development.