Are Diaspora Remittances A Solution to Africa’s Underdevelopment?

[Globalization + Migration + New Governance]

[Crosslinked at Future Challenges Organization‘s Blog]

Poverty is recognizable. It is conveyed easily and simplistically by images of malnourished children who live with social instability, food insecurity and undereducation. However, this is not the whole story. Poverty is not simply the antithesis of prosperity, it is the result of systemic and structural inequalities, as well as inequality on as individual, relational level. Africa, a continent rich with mineral wealth and human capital is impoverished insofar as inequality persists. Structural problems, like lack of supportive infrastructure that would enable the success of small businesses- bureaucracy, roads, buildings, schools and accessible, affordable healthcare. With this in mind, money is not the answer to poverty and socioeconomic inequality.

Poverty alleviation programs put money into the hands of impoverished individuals and expand the tax base. In addition to allowing them to participate in the economy, it also expands the government‘s tax base, allowing for revenue for public goods like roads, schools and hospitals. However, it is important to note that money is not the way out of poverty, nor is food the answer to hunger. Aid is a short-term answer that does not address the long-term problems of inequality, lack of infrastructure and displacement of people from their land. According to the African Development Bank (AfDB), a comparison of optimal aid allocation versus actual flow of aid for selected African countries shows that only 20 percent of global aid allocated to Africa is consistent with UN (United Nations) Millenium Development Goal 1: promotion of economic growth,poverty-reduction and ending hunger. The long-term solutions have to be comprehensive: equipping impoverished people with skills, tools and assets. Similarly, to address food insecurity and hunger, long-term solutions such as sustainable irrigation practices.

What separates diaspora remittances from aid? Well, first of all, the money that members of the African diaspora send to their respective homelands far exceeds aid monies donated by supranational organizations and governments. As of May 2011, annual remittances to the continent have exceeded 40 billion US dollars. According to the World Bank, remittances to sub-Saharan Africa totaled 21.5 billion USD. Secondly, the flow of diaspora remittances is more microeconomic in nature. Whether remittances are sent transnationally or internationally, they are a function of migration being essential to economic well-being. Sowing directly into family members, diasporans are making investments into the well-being of their families.

According to World Bank figures, the top ten recipients of diaspora remittances on the African continent in 2010 were:

  • Nigeria ($10.0 B)
  • Sudan ($3.2 B)
  • Kenya ($1.8 B)
  • Senegal ($1.2 B)
  • South Africa ($1 B)
  • Uganda ($0.8 B)
  • Lesotho ($0.5 B)
  • Ethiopia ($0.4 B)
  • Mali ($0.4 B)
  • Togo ($0.3 B)

In Lesotho, total (official, reported) remittances in 2009 made up 25 percent of the Gross Domestic Product. In Burkina Faso, the number of people living below the poverty line was reduced by 7.2 percent in rural households as a result of international remittances. In Zimbabwe, families with members who studied and worked abroad tend to have higher levels of educational attainment as compared to households without migrants. Now, this is not to say that remittances are the sole reason for the socio-economic mobility of households; however, the connection between diaspora remittances and improved standards of living are undeniable. The question remains whether the „brain drain“ has a negative impact on the continent. Is the loss of skilled human capital through emigration and immigration recompensed by diaspora remittances?

Moreover, what are major hindrances to long-term, sustainable investment of diaspora remittances?

Possible hindrances to diaspora investment in local businesses:

Possible hindrances, in the public sector, to diaspora investment in local business include, lack of dual citizenship agreements between nations of origin and destination countries and lack of government vision for involving members of the diaspora. Additionally, cost-prohibitive sunk costs, including fees for business licenses and bribes for corrupt officials can be a roadblock as one establishes a business. Possible solutions include expansion of diplomatic ties, mutually beneficial dual citizenship agreements and homeland government-diaspora partnerships in forming policy

In the private sector, lack of locally accessible credit from national banks is one of the bigger factors preventing more entrepreneurship. Solutions include regulating interbank transfer fees as part of a general strategy to foster greater transparency and accountability among financial organizations. Diaspora bonds, issued by the homeland government and underwritten by banks, which would enable Africans to borrow money from the international market.

Diaspora remittances are a potential source of investment capital toward long-term growth on the ground in Africa. Poverty and underdevelopment are present problems that face many African people, but they are not a permanent reality. I remain hopeful that a more equitable world is just around the corner, to be formed as families continually invest in each others‘ well-being and governments and the private sector are subject to greater accountability.

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