Remittances to Africa: cutting the cost, harnessing the potential

16 April 2014 13:45 - 18:00 (GMT+01 (BST))
Public event
This event was streamed live on the ODI website
Details
On Wednesday 16 April ODI and Comic Relief brought together key people from the world of banking, money transfers and politics (UK and African) for an event on the huge cost to Sub-Saharan Africa of high money transfer fees.

Over the course of the afternoon attendees heard from three panels, each of which covered remittances  from a different angle.

Visit our remittances page to read the report, see infographics and watch a short video with Kevin Watkins

Panel session 1: Remittances to Africa – general overview & problem

  • Chair: Baroness Kinnock
  • Welcome from Kevin Watkins + 10 minute presentation of main finding of ODI new research paper
  • His Excellency, Mr Williams Nkurunziza, High Commissioner of Rwanda 
  • Rushanara Ali MP, Shadow Minister for Education  
  • Gibril Faal, chairman African Foundation for Development (AFFORD)

Glenys Kinnock introduced the discussion, highlighting the importance of remittances for families in Africa. She called on the Financial Conduct Authority to intervene.

Kevin Watkins and Maria Quattri presented the ODI report and its findings. Their presentation highlighted that remittances are a source of funds to invest in education, health, agriculture and starting business, or insure against crisis. 

They showed the level of control Western Union and Moneygram have over the remittances market in Sub-Saharan Africa, leading to a virtual duopoly in many countries. They outlined the fee structures and some policy recommendations from their report. 

His Excellency, Mr Williams Nkurunziza, High Commissioner of Rwanda described his shocked reaction to the report, describing the combination of remittance fees and cost of finance on the African continent as “holding the African poor in a state of perpetual poverty”. 

He focused on how remittances help the needy in Africa and in Rwanda – decrying the fees as ‘irresponsible capitalism’. He offered his support for the recommendations outlined in the report, advocating for a fair trade in money transfer services.

Rushanara Ali MP, the UK Shadow Minister for Education, discussed another dimension of the remittances debate: the role they can play in countries where there is no formal banking system, such as Somalia. She played a leading role in the successful ’Save Remittance Giving’ campaign to challenge Barclays in their decision to shut down remittances to Somalia. 

Her view was that there was a market failure in remittances, and that a long-term solution was needed for remittances to countries without banking facilities. This should be based around ‘legitimate pathways’ to get money in effectively and affordably, avoiding concerns about money laundering or terrorism.  

Panel session 2: The money transfer market and strategies to lower charges

  • Chair: Baroness Kinnock
  • Dilip Ratha, Head of Migration and Remittances Unit, World Bank
  • Dominic Thorncroft, chairman UK Money Transmitters Association
  • Selma Ribica, commercial strategy & product innovation, M-Pesa
  • Abdirashid Duale, Chief Executive, Dahabshiil
  • Onyekachi Wambu, of Afford-Uk  

The second session looked at strategies to lower charges, and they could be summed up as competition and changes to regulations.

Dilip Ratha, head of the migration and remittances unit, at the World Bank, said: “If you are waiting for the banks to cut the costs of remittances, you're barking up the wrong tree.”

Dominic Thorncroft, chairman of UK Money Transmitters Association, said his members were the “small community” enterprises that could provide cheaper deals but they were being “excluded” by banks.

There was a consensus that regulations were needed to end big banks’ exclusive deals in some countries –rather than to keep out small operators.

Abdirashid Duale, chief executive of Dahabshill – a firm specialising in sending money to Somalia – said:  "It all started with 9/11" – before explaining how regulations since the terrorist attacks on the USA had made it very difficult for small firms to operate “even though none of the hijakers were from Africa”.

It was agreed that innovation was needed to increase competition and one African success story was being imported to Europe according  to Selma Ribica of Vodafone.

Mpesa – a person to person mobile money transfer system that operates successfully in Kenya is going to be established in Romania.

Onyekachi Wambu, of Afford-Uk  an African foundation said migrants have no say about where there money is spent.


Panel session 3: Innovative strategies to strengthen development impacts of remittances – lessons from Mexico

  • Chair: Larry Elliott, Guardian Economics Editor
  • His Excellency,Mr Diego Gomez Pickering, Ambassador of Mexico
  • Mr Demeke Atnafu, Minister Counsellor - Diaspora Affairs, Ethiopian Embassy 
  • Rachel Turner, DFID director of East and Central Africa 
  • Dr Covadonga Meseguer, Associate Professor in International Political Economy, Department of International Relations, The London School of Economics and Political Science 

Diego Gomez Pickering explained the 3X1 programme, which combines funding from Mexican diaspora groups with funding from government to develop social and infrastructure projects. 

Background

  • 12 million Mexican immigrants in the US
  • 19 million Mexicans born in US
  • Total 98% of the world’s Mexican diaspora 

Key points on 3x1 programme

  • It has been in operation for more than two decades – billions of dollars spent
  • It channels collective-remittances to social projects and gives migrants a chance to support the town they come from in Mexico
  • Initially led by migrant groups in 1980s, state and local governments matched migrant investments (known as 2x1)
  • In 2002 Federal government began to match spending (now 3x1)
  • In 2003 Institute of Mexicans Abroad established – a government office that aims to empower Mexican community 
  • Funds water supplies, roads, culture, social and community developments plus agriculture and higher education projects

Critique

Dr Covadonga Meseguer responded with some research from 2002-7 on problems associated with the 3X1 programme.

  • Organised migrants do not come from poorest communities – hence those communities are not always receiving badly need funds
  • There are many layers of government involved – with decisions taken by majority rule – which could encourage political biases
  • These are discretional decisions, not an objective allocation of resources

Audio/Video

Click the play button to start the video player. Once started, choose a particular speaker or segment by clicking the 'Playlist' button on the top left of the video box.