n AfricaGrowth Agenda - Remittance, the undervalued capital flow to sub-Saharan Africa

Volume 2010, Issue 1
  • ISSN : 1811-5187


Queues of migrant workers waiting to send money home to their families hardly presents a picture of globalization at its most glamorous. But such remittances made up more than 20% of the GDP of some countries such as Jamaica, Jordan, Lebanon, Moldova, and Tajikistan in 2007. Another virtue of remittances is that they may be less volatile than more publicized private capital flows, such as equity and lending by foreign banks. The truth of the matter is that the financial crisis that started in 2007 has caused private capital flows to continue their downward spiral. The institute of International Finance (IIF), a global banking body, reckons that net private capital inflows into emerging economies fell from $929 billion in 2007 to $466 billion in 2008, a drop of nearly 50%. IFF estimates only $169 billion capital flows to emerging markets in 2009. All of which makes remittances to developing countries more precious, and questions about their resilience more pressing. New estimates from the World Bank put the flows as high as $305 billion in 2008, up from $281 billion in 2007. And although all regions except South Asia saw a slowdown in the rate of growth, the very fact that they still rose in most places is good news, given the collapse in other private financial flows to the developing world. Remittances are less dependent on the growth prospects of the recipient country than other kinds of flows which seek profitable investment opportunities. Sending money home is often a motive for emigrating, so that migrants remit money even in lean times. Furthermore, because sums sent home tend to be small, typically around 5% of a migrant's income, people can still keep the cross-border payments going even when their income fall.

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