- Africa’s remittance market is projected to reach $500 billion by 2035, driven by mobile money technology and strategic investments in financial infrastructure.
- Despite high remittance costs, reducing fees through competition, regulatory improvements, and digital expansion is essential for maximizing economic benefits.
- Addressing informal channels and promoting financial literacy will further enable the continent to harness the full potential of remittances for sustainable growth and development.
Africa’s remittance market is poised for steady growth, with predictions indicating it could reach a staggering $500 billion by 2035. This projection comes from DAI Magister, an investment bank, which highlights the vital role remittances play in the continent’s economy.
The total value of remittances in Africa hit $100 billion in 2022, with $20 billion attributed to intra-Africa flows. As remittances comprise a huge portion of African GDP, understanding and optimizing this financial inflow is crucial for the continent’s economic future.
High costs of remittance transactions
Despite the vital role of remittances, the cost of sending money to Africa remains prohibitively high. The UN Sustainable Development Goals (SDGs) aim for remittance fees to be below 3 percent by 2030.
However, current data from the World Bank shows that the global average remittance fee is twice this target, with some parts of Sub-Saharan Africa experiencing fees as high as 20 percent. Reducing these costs is essential for maximising the benefits of remittances for Afican economies.
Risana Zitha, Managing Director and Head of Africa at DAI Maigister, points to several strategies for reducing remittane costs. Increased competition, stakeholder collaboration, and investment in financial infrastructure are key to lowering global remittance fees. Zitha notes that the transformative potential of mobile money in addressing high remittance costs.
The Rise of Mobile Money in Africa
Mobile money has emerged as a game-changer in the African remittance market. The integration of mobile technology into financial transactions has significantly lowered costs and increased accessibility.
Zitha anticipates further reductions in fees through enhanced mobile money interoperability, better financial literacy, and streamlined legal frameworks.
Looking ahead, the remittance market in Africa is expected to maintain its growth trajectory. Between 2019 and 2022, the formal African remittance market grew at a compound annual growth rate (CAGR) of 12.1 percent. Based on this growth rate, the market value, valued at $100 billion in 2022, could potentially reach $238 billion by 2035.
Plugging informal channels in Africa’s remittance market
An essential factor in reaching the $500 billion target is addressing the informal remittance market. Informal channels are estimated to account for between 35 percent and 75 percent of the total value of formal remittance transactions. Sub-Saharan Africa experiences a higher proportion of informal transactions than the global average, underscoring the need for putting measures to formalize the business.
To fully capitalize on the opportunities in the remittance sector, stakeholders must address the challenges and barriers hindering growth. Reducing remittance costs should be a primary focus. This can be achieved by promoting competition, improving regulatory frameworks, and investing in financial infrastructure.
Lowering costs will enable remittance providers to offer more affordable services, benefitting both senders and recipients and contributing to economic growth and development.
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Expanding digital remittance services
Improving access to digital remittance services is another crucial aspect. While mobile money has made huge strides in Africa, there is still considerable room for expansion. Governments and private sector stakeholders should invest in digital infrastructure, such as mobile networks and internet connectivity, to ensure broader access to digital remittance services, Zitha explains.
Promoting financial literacy and education is also vital. Helping individuals understand and trust digital remittance channels can encourage greater adoption and usage. By leveraging technology and innovation, Africa can harness the transformative power of remittances for sustainable development and economic growth.
The ability to harness remittance flows is particularly important as the Sub-Saharan region faces acute hard currency shortages. By addressing the challenges and barriers, and leveraging the opportunities presented by technology and innovation, Africa can boost its remittance market a great deal. The potential growth to $500 billion by 20235, represents a huge opportunity for economic development and prosperity across the continent.
