Africa’s dollar flows from migrant workers set to fall by Ksh.1.2T, study reveals

Dollar flows to Sub-Saharan Africa from its migrant population abroad is expected to decline in 2020 by Ksh.1.2 trillion ($11 billion) in 2020 or an equivalent 23.1 percent, a new study shows.

The study by the Global Knowledge Partnership on Migration and Development (KNOMAD) expects the flows, commonly referred to as remittances to take a hit from the ongoing coronavirus pandemic which has resulted in the tightening of economic conditions in host countries.

Globally, low income and middle income countries (LMICS) remittances are expected to contract by at least 20 percent to Ksh.47.6 trillion ($445 billion) from a projected total of Ksh59.2 trillion ($554 billion) in 2019.

According to the study, the deterioration of economic conditions is expected to disproportionately weigh on migrant workers in host countries with many of the workers lacking cushioning from the shocks in the overseas countries.

“Migrant workers tend to be vulnerable to the loss of employment and wages during an economic crisis in their host countries, more so than native born workers,” notes the report.

The global economy is projected to enter recession this year by both the World Bank and the International Monetary Fund (IMF) with economies output expected to contract by as much as 8.7 percent in worst case scenarios.

Data from the European Union (EU), a key destination for Africa’s migrant workers shows the disproportionate effect of crises on migrant workers.

For instance, the unemployment rate of migrant workers shot up to 16.4 percent in the aftermath of the 2008-2009 financial crisis against an average unemployment rate of 11.1 percent.

In 2018, the unemployment rate of migrant countries in the 28 countries still stood at 12.3 percent against a 6.9 percent average for native workers.

“Policy responses have largely ignored migrant workers and their families back home,” adds the report.

In addition to the lack of cushioning, the study notes migrant workers who are largely dependent on informal sector jobs also suffer from discrimination and xenophobic attitudes.

The fall in remittances is expected to even hit harder at destination countries in the region with many economies in Africa being overly reliant on the flows for economic prosperity.

Remittances become an even more important feature for growth particularly during tough economic times, a phenomenon referred to as the countercyclicality of remittances.

“Not only do new migrants send money homes, these amounts increase during the time of crisis and hardships in their countries of origin,” notes the report.

Remittance flows as a source of external financing for low and middle income countries is expected to remain pivotal in the external financing of low and middle income countries in spite of the projected decline, overtaking Foreign Direct Investments (FDIs) in size this year.

FDIs in LMICs are expected to fall by a higher 35 percent largely from disruptions in international trade and commerce.

Africa’s top recipients of remittances in 2019 include Nigeria at Ksh.2.5 trillion ($23.8 billion), Ghana at Ksh.375 billion ($3.5 billion) and Kenya at Ksh.300 billion ($280 billion).

The reliance on remittances for growth is however higher as a percentage of GDP in South Sudan (34.4 percent), Lesotho at 21.3 percent and the Gambia at 15.5 percent.

In Kenya, remittances made for an estimated three percent of GDP in 2019.

Remittance flows to Kenya have already begun contracting in early 2020 with the flows standing at Ksh.23.4 billion ($219 million) in February from Ksh.27.8 billion ($259.4 million) according to data from the Central Bank of Kenya (CBK).

The fall in remittances and contracting Forex (FX) earnings from exports has weakened the local unit with the shilling projected to set a new historical low in its exchange against the US dollar by the end of the week.

To provide resilience, the report by KNOMAD recommends governments to adopt digital payments as traditional remittance service providers (RSPs) suffer from lockdowns, reduced business hours and social distancing with many not classified as essential services in many countries.

The report further lauds CBK attempts to encourage digital payments in Kenya having agreed with banks to drop transaction charges for transfers below Ksh.1000 ($9.3) as a means to promote the use of mobile money at this time.