Africa & World Economy

COVID-19 is Reducing Domestic Remittances in Africa: What does it Mean for Poor Households?

By SAMIK ADHIKARI / World Bank

The amount remitted by migrants from Sub-Saharan Africa (SSA) has grown tenfold in two decades, from $4.8 billion in 2000 to $48 billion in 2018. This reflects a steady increase in the number of people who decided to move in search of a better life: from 21.6 million in 2000, the number of migrants from Africa grew to 36.3 million in 2017.

In Nigeria, remittances reached $25 billion in 2018 – almost four times more than foreign direct investment and official development assistance combined. In Lesotho, remittances amounted to 16% of the country’s gross domestic product (GDP.)

But that is forecasted to change. The World Bank’s latest Migration and Development Brief predicts that international remittances to SSA will decline by 23% in 2020 because of the COVID-19 (coronavirus) pandemic, with implications for major recipient countries in the region.

While much work has gone into tracking international remittances, less is known about remittances sent by migrants within countries. This gap limits informed assessments of these remittances’ trends and impacts, especially at a time of crisis when the information would be extremely important.

Tracking internal remittances is crucial for several reasons. First, the number of people who move within African countries is likely far higher than those who move across borders. Estimates from 2005 suggest that there could be 113 million internal migrants in the region. Second, internal migrants are often poorer than international migrants, as migrating across borders requires high upfront costs that few poor households can afford. Third, remittances sent by internal migrants, mostly from urban to rural areas, are a vital source of non-labor income for rural households. The urban economic closures due to COVID-19 will severely impact internal migrants’ ability to send remittances to rural areas. The International Labour Organization estimates that earnings of informal sector workers in Africa will decline by 81% in the first month of the crisis. This could potentially have catastrophic impacts on rural livelihoods.

Initial analysis further stresses the importance of domestic remittances for poor households in SSA. A few things are apparent from analyzing domestic and international remittances among households in Ghana, Nigeria, and Sierra Leone (Figure 1):

  • The percentage of households receiving domestic remittances is much higher on average than the percentage receiving international remittances.
  • The poorest households don’t benefit directly from international remittances as much as they do from domestic remittances.

Figure 1: Percentage of households receiving remittances by consumption quintile in Sierra Leone, Ghana, and Nigeria

Percentage of households receiving remittances by consumption quintile in Sierra Leone, Ghana, and Nigeria
Source: Sierra Leone Integrated Household Survey (2018), Ghana Living Standard Survey (2016/17), and Nigeria General Household Surveys (2018/19**)

This does not mean that international remittances are unimportant for poorer households. In fact, when poor households are able to send members abroad, their return on investment can be much larger than gains from most development interventions. In Sierra Leone, remittances sent by international migrants amount to more than 50% of annual household consumption, while those sent by internal migrants make up just 10%, on average (Figure 2). International remittances received by richer households could also be a source of investment in Sierra Leonean enterprises that employ internal migrants, indirectly helping the economy in general. However, direct recipients of remittances constitute less than 2% of the surveyed households in the first three consumption quintiles, as compared to 17% who reported receiving remittances internally.

Figure 2: Remittance received as percentage of annual household consumption, Sierra Leone, 2018

Remittance received as percentage of annual household consumption, Sierra Leone, 2018

The channels and frequency through which domestic remittances are transferred from urban to rural areas are not well understood. Often, migrants carry money and goods with them when they go back to visit their villages. Lockdowns and restrictions on internal travel due to COVID-19 are prohibiting rural households from receiving much-needed non-labor income, which might mean foregoing necessary farm inputs or losing a nonfarm enterprise. A few hundred dollars could be the difference between subsistence and food insecurity.

While most countries in Sub-Saharan Africa now have at least one safety net program that provides income and in-kind support to poor households in rural areas, coverage remains low in many countries across the region. Remittances that migrants send to rural areas provide critical supplementary resources to households and help fill in coverage gaps where safety net programs are unavailable. With closures and lockdowns, current responses are understandably focusing on helping informal sector workers in urban areas, where the economic crisis is likely to be more severe initially. But in addition to targeting migrant workers through emergency support schemes, it is important to continue and expand support for poor households in rural areas through safety nets, especially where a substantial portion of rural households rely on remittances.

Equally important is investment in data collection, including household surveys and administrative data, to inform the design of policy responses, as is using innovative data platforms to understand mobility patterns within countries.

CREDIT: The Post COVID-19 is Reducing Domestic Remittances in Africa: What Does it Mean for Poor Households? first appeared in the World Bank Blog on 9th June, 2020.

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