African Migration Generates Win-Win Benefits, Says New Report

March 30, 2011

Latest findings from joint World Bank, AfDB research

WASHINGTON, DC, March 30, 2011 – 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 percent of migrants from North Africa have moved outside the African continent. The top destinations for African migrants are France (9 percent of total emigrants), Cote d’Ivoire (8 percent), South Africa (6 percent), Saudi Arabia (5 percent), and the United States and the United Kingdom (4 percent 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–$10 billion 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 $40 billion 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 percent in Burkina Faso, 55 percent in Kenya, 57 percent in Nigeria, 15 percent in Senegal, and 20 percent 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.

The report recommends that post offices, savings and credit cooperatives, rural banks, and microfinance institutions that have large branch networks can play an important role to expand access to remittances and financial services among the poor and in rural areas. But they should avoid exclusive agreements with money transfer operators, which limits competition and tends to increase the cost of sending money. There is also a need to assess the implications of telecom companies in Africa offering mobile money transfers and other financial services for banking stability and systemic risk.

About the Report

Leveraging Migration for Africa: Remittances, Skills, and Investments fills important knowledge gaps on African migration, remittances, and diasporas. It is produced jointly by the African Development Bank and the World Bank as part of the Africa Migration Project. The project has the financial support of the African Development Bank; the Canadian International Development Agency (CIDA); the Department of International Development (DFID); the French Ministry of Immigration, Integration, Asylum and Solidarity Development; the Danish Ministry of Foreign Affairs; the International Fund for Agricultural Development (IFAD); and the Swedish International Development Cooperation Agency (SIDA). 

Two companion volumes—Remittance Markets in Africa, and Diaspora for Development in Africa—have also been published. Also newly published are primary databases from six household surveys on migrants conducted in Burkina Faso, Kenya, Nigeria, Senegal, South Africa, and Uganda.

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