Many African family members take advantage of the availability of diaspora remittances, which are an important source of foreign finance for Africa. They make the difference in many households between food on the table and going to bed hungry.
Remittances to Africa have risen over the past ten years, and they will surpass official development assistance (ODA) and foreign direct investment (FDI) in value by 2022 when they reach $100 billion. The growth of these funds has been exceptional, empowering dependents to meet their basic needs, pursue education, access healthcare, and embark on entrepreneurial endeavors.
According to a report from Agusto & Co., remittances have a favorable relationship with immigrants’ income and the state of the economy in the sending nation. This tendency was evident in 2022 in the numerous rich economies that experienced a delayed economic recovery and cost of living difficulties, which limited remittances to Nigeria.
Diaspora remittances have become more and more crucial to Nigeria’s economy, acting as a driver of economic growth and development as well as a significant source of foreign exchange revenues.
As more Nigerians, discouraged by the country’s gloomy economic conditions, look overseas for opportunities, their remittances will continue to play, a crucial role in sustaining the Nigerian economy. This comes in areas including:
To help support relatives, money transfers are made. For many Africans living in rural or isolated locations, these are essential sources of income because they offer stability and security in terms of money. They might send a bank transfer, for instance, to pay for food and other requirements.
Investments in small enterprises, housing, healthcare, and education are funded by remittances. Digital channels are used by migrants to send money as working capital for their businesses. For example, data from UNCTAD indicates that countries with higher remittances tend to have lower poverty levels. In addition, research has found that remittances promote entrepreneurship in Africa by providing business capital.
To cover their educational costs and basic needs while studying abroad, international students frequently use money transfer services.
Diaspora remittances are a crucial tool for a nation’s economic growth. For instance, a diaspora connection is vital to the development of several nations. For example, a diaspora bond issued by a government to its diaspora or overseas citizens can raise the diaspora’s capital to finance development projects in the issuing country.
The role that overseas remittances play in African economies is well-known. An estimated $100 billion a year flows into the continent, making it one of the most important sources of foreign currency. There is now also growing enthusiasm and concern for much of this money. This is reflected in two basic socio-economic trends: increased emigration and a rise in remittance channels.
Mass Emigration (Japa Wave)
This growing trend in emigration has been informally tagged “Japa” a Yoruba word that translates to “flee or run away”. As more countries, particularly highly sought-after destinations, have become more welcoming of immigrants as a result of the global labour shortage experienced post-COVID-19, there are now more opportunities than ever for migrants seeking employment in environments with improved economic and living conditions.
Remittances are also often utilized to support the livelihoods of dependents back home. However, Agusto & Co. believes that the surge in emigration witnessed in 2022 is yet to translate to a commensurate rise in remittances as the majority of the migrants are students who will not be able to fully join the labour force in their host countries until mid-2023.
Nigeria has been dealing with the challenges of emigration and brain drain for decades as a result of the rising number of people fleeing in search of greener pastures amid the country’s dim economic prospects. This widespread exodus has left many businesses severely understaffed, which has stunted the expansion of a variety of industries and lowered tax revenues for the government.
Nigeria’s emigrant base is currently skewed towards the economically productive middle-class demographic, which is positive for remittances and underpins the need to devise strategies targeted at this age group to ensure the sustainability of remittances. However, given the significant contribution of students to the emigrating population, Agusto & Co. expects a surge in remittance inflows in the medium term.
Increased Channels for Remitting Funds
The development of new technology has been one of the biggest shifts in the diaspora remittance sector. Sending money to Africa has become more convenient and affordable thanks to these technologies.
A developing trend in the money transmission industry is remittances. Sending money overseas is now simpler than ever thanks to the increase in mobile and internet banking usage. Fintech collaborations promote African remittances sent home by the African diaspora. The blocks offer creative solutions that save expenses and increase the speed and effectiveness of remittances from the diaspora.
The use of digital money transfer channels has greatly increased as a result of COVID-caused movement limitations. According to estimates, mobile phone payments increased by 48% in 2021 as a result of lockdowns and border closures occurring all around the world.
Agusto & Co. believes that this structure gives businesses an advantage by allowing them to benefit from the dependability and convenience of physical locations and the accessibility of digital solutions by having both a digital presence and a real address.