Migration has win-win benefits: report

Johannesburg – With about 30 million Africans living outside their home countries, migration is a vital lifeline for the continent. Yet African governments need to do more to realize the full economic benefits of the phenomenon, says a new report by the African Development Bank and the World Bank.

The report, Leveraging Migration for Africa: Remittances, Skills, and Investments, presents data from new surveys. The report finds evidence that suggest migration and remittances reduce poverty in the origin communities.

Remittances lead to increased investments in health, education, and housing in Africa. Diasporas also provide capital, trade, knowledge, and technology transfers.

“Migration pressures will only rise in the future as a result of demographic changes of rising population in Africa and falling labor forces in Europe and many developed countries,” said Hans Timmer, director of development prospects at the World Bank.

“Therefore, adapting policy responses to demographic forces and crafting multilateral arrangements for managing future migration is essential.”

Two-thirds of migrants from Sub-Saharan Africa, particularly poorer migrants, go to other countries in the region, while more than 90% of migrants from North Africa have moved outside the African continent.

The top destinations for African migrants are France (9% of total emigrants), Cote d’Ivoire (8%), South Africa (6%), Saudi Arabia (5%), and the United States and the United Kingdom (4% each).

Shantayanan Devarajan, chief economist of the Africa region at the World Bank, said “Migration of skilled labor is particularly high in small and low-income African countries, which already have low levels of human capital. Fragile and post-war countries face even bigger challenges because of the flight of human capital. African governments and policy makers should focus on increasing education and skill levels and establishing an environment in which high-skilled workers have productive opportunities at home.”

“African governments need to strengthen ties between diasporas and home countries, protect migrants, and expand competition in remittance markets,” said Dilip Ratha, main author of the report and lead economist at the World Bank. “Otherwise, the potential of migration for Africa remains largely untapped.”

One innovation worth considering are diaspora bonds, which are sold by governments or private companies to nationals living abroad. These bonds have already been successful in tapping into assets of Israeli and Indian citizens living abroad.

According to Ratha¸ Sub-Saharan African countries can potentially raise $5–$10bn a year in diaspora bonds. Countries with large diasporas in high-income countries that can potentially issue diaspora bonds include Ethiopia, Ghana, Kenya, Liberia, Nigeria, Senegal, Uganda, and Zambia in Sub-Saharan Africa and Egypt, Morocco, and Tunisia in North Africa.

“African banks can improve their access to international capital markets by issuing bonds that are securitized by future remittance inflows,” said Mthuli Ncube, Chief Economist of the African Development Bank.

“The African Development Bank, the World Bank and bilateral donors can play a significant role in facilitating remittance securitization and mitigating the risks to African countries of issuing these remittance-backed bonds. Efforts can include technical assistance in project design and creditworthiness analysis, prudential debt management, and helping African countries obtain sovereign ratings.”

Recorded remittances into Africa, which grew fourfold between 1990 and 2010 to reach nearly $40bn in 2010, are the continent’s largest source of foreign capital after foreign direct investments.

Recent surveys show that investments such as land purchases, building a home, and starting a business were the highest uses of remittances sent home by African diaspora.

As a share of total investment, these represented 36% in Burkina Faso, 55% in Kenya, 57% in Nigeria, 15% in Senegal, and 20% in Uganda.

Education was the second-highest use of remittances from outside Africa into Nigeria and Uganda, the third highest into Burkina Faso, and the fourth highest into Kenya.

However, official remittance flows to Africa are significantly underestimated, with only about half of the countries in Sub-Saharan Africa collecting and reporting remittance data with any regularity.

The report finds it is still very expensive to send remittances to African countries, particularly within Africa. According to Ratha, these high costs encourage the use of informal channels and are an unnecessary burden for African migrants and remittance recipients.