Trends show how migration may actually be good for Africa

With the burgeoning trends of the African diaspora, the citizens of the continent provide a massive economic opportunity both inside and outside. According to the World Bank, there was a 10% increase in remittance inflows from 2016 to 2017 and is only expected to grow more in the coming few years.

While the outside world may see the rising number of Africans moving abroad, this is actually fueled by the relative improvement of economic activities in OECD countries, not by a relative declining of the conditions within Africa. The economic value that Africans creating abroad are the main sources of remittances for Sub-Saharan African countries.

The increasing number of remittances brings value back into their mother countries, often for necessary expenses such as education. For companies looking to service the African immigrant and diaspora class, such as MTO’s (money remittance companies) or job placement agencies, the opportunities abound.

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Growing migration rates in Africa

The continent experienced a 50% growth in emigration rates during the period between 2010 and 2017. In comparison to the global average growth rate of 17%, the African figure is remarkable. At that time, there were over 25 million people from the continent living outside their birth nations.

Migration and Remittance in Africa Pulse Nigeria

High remittance rates into Africa

The high economic potential of the African diaspora is evident from the high remittance amounts that the continent receives annually from its various migrant communities. In last year alone, Africa received $40 billion in remittances and is expected to keep rising in the foreseeable future.

Top Remittance Receivers Pulse Nigeria

The key factor explaining the comparatively higher remittance rate to North Africa as opposed to Sub-saharan Africa is the growth in the Euro area. Notably, Maghreb countries Morocco, Algeria and Tunisia receive most of their remittances from this region. The trend of migration from this area started back in the 1950s when Europe experienced a surge in demand for post-World War II reconstruction and also due to the rapid growth of the region’s economy. Though most were recruited as a temporary measure, many stayed there permanently.

Heavy reliance on remittances for GDP

Top African Countries Pulse Nigeria

A considerable number of countries in Africa depend heavily on remittances to maintain their GDPs. 2018 data from World Bank places The Gambia in the lead with more than a fifth of their GDP from remittances.

A debate has been raging on the impact of this reliance on economic performance. On the positive side, countries with a high GDP share from remittances have higher foreign currency inflows and better economic stability. Better health and higher education attainment translate to human capital accumulation. Research also points to their ability to reduce economic volatility by stabilizing goods and services demand.

Another positive effect has to do with remittances’ contribution to foreign exchange inflow. In countries where they constitute a significant portion of the GDP, they could help improve credit rating, prevent sudden economic reversals due to instability and promote an inflow of new investments. Some of the negatives include low labor supply, high dependency, less investment and worse income distribution.

High average remittance costs

While on a global scale, the average cost of sending $200 was 7.1% at the beginning of 2018, sub-Saharan Africa remained one of the costliest places to send money. On average, the cost is about 9.4%. Since 2015, the figure has fluctuated between 9% and 10% after having fallen dramatically to 10% in 2014 from 14% in 2008.

Part of the reason is substantial financial infrastructure shortcomings, but the other half is because of monopolies in the market, such as Western Union. By partnering with innovative fintechs such as TransferZero, money remittances companies can now bring that cost down to lower than 3%.

Phenomenal growth on the horizon

The continent has continued to enjoy high migration rate growth, almost three times higher than the global average, another positive indicator. Interestingly, economic opportunities related to the African diaspora are not only to be found abroad. A majority of migrants on the continent move to other countries in Africa.

Depending on their reasons for migrating, they might require remittances from home, such as refugees and academic migrants or they could be the ones sending money back home. With these two factors in mind, investors who plan in advance to take advantage of the opportunity could enjoy remarkable early-starter benefits.

For more information about our API and white label solutions, that could help you take advantage of these growing trends, please reach out here.

Stephany Zoo is a contributor for Business Insider Sub-Saharan Africa. Having lived on three continents, she strives to create stories that knit together diverse backgrounds. Entrepreneurial at heart, Stephany founded ecommerce site BUNDSHOP.com, and League X, a boutique tech branding firm. She helped launch SAP’s flagship SME product in China, as well as consulted for a number of Chinese SOE’s, including Ping’An and China Telecom. She is currently the Head of Marketing for BitPesa, Pan-Africa’s digital FX and treasury solution. Her passion projects also include Phoenix Risen, a platform to bring men and women together to combat sexual violation, and China Africa Tech Initiative, focusing on accelerating the tech industry as the next era of collaboration between China and Africa.