Diaspora remittances as finance source for development

Thursday September 6 2018


Two weeks ago, I wrote an article about the role of diaspora in financing socio-economic development at the global level, in Africa and in our country.

Last week I attended the 2018 DICOTA Convention where I was invited to speak on matters of investment opportunities here at home, particularly in the capital markets space, by the Tanzanians in diaspora. In today’s article I summarise part of what I spoke in this convention.

It is clear now, that remittances are becoming an increasingly important component of external finance for developing countries and the Least Developed Countries.

The 2018 World Investment Report that came out this July indicates that global remittances are currently at $466 billion in 2017, exceeding other major sources of external finance such as Portfolio investments (which was at $420 billion), Overseas Development Assistance (ODA) at $190 billion as well as long-term and short-term loans (private and public) at $240 billion.

For Africa, remittances in flow for 2017 were $65 billion, exceeding all other sources of external financing, including foreign direct investment (FDI) inflows, which reached $42 billion.

Nigeria, Egypt, Ghana, Kenya, Ethiopia being among those leading the perk of remittance inflow at $22 billion, $20 billion, $5 billion, $2 billion and $1 billion, respectively.

For us in Tanzania, as the figure below indicates, we are yet to significantly and tangibly benefits from the diaspora both economically, financially and in other aspects.

To benefit more from this source of finance, we need to clearly define the role of diaspora in our socio-economic development process.

This could be achieved by sensitizing and encouraging Tanzanians living abroad to invest back home. At the same time, we need to create a conducive environment and financial instruments designed to facilitate diaspora investments.

This may include creation of special savings instruments such issuances of a diaspora bonds targeted at financing specific projects such as road, railway, airport, irrigation infrastructure, etc -- like what Ethiopians did. We may also consider finding solution to the reduction of cost for remittances as well as securitization of remittances.

While on it I thought it was fair for us to analyze, or rather interrogate ourselves as to why the status of remittances inflow and average remittance per individual is relatively lower compared to other countries? For example, while remittances per individual in Egypt are $2,105; Nigeria $1,295; Kenya $670 and Ethiopia $350 – ours is $290 per person.

Much as this may be a result of poor entrepreneurial as well as savings culture, as we know it to be even here at home – but there may be other reasons, i.e. probably diaspora from other countries went outside long time ago for reasons such as civil wars, hunger, political related reasons, etc and therefore have had more time to settle in, build up wealth, raise the highly-educated-well-earning children who also contribute to what’s sent back home – this is not the case for Tanzanians in diaspora; or the other reasons may be related to time and/or professional, for example probably diaspora from these other countries are rather professionals who are highly-paid from the get-go, and therefore more able to quickly build up a monetary base which they remit back home to their countries; or may be it might be caused by the way our people living abroad remit moneys back home.

Yes, Western Union, and Bank transfers are commonly used as formal tools for remittances (and therefore largely sources of data for remittances), but what about the possibility of flows which are not accounted e.g., those sent through people bringing cash in bags when come back, affect the $ sent / person numbers?

The case of dual-citizenship, much as it has merits and impact on this matter, but it may be over-blown as one of the causes for state of low levels of remittances – we may need to be reminded that India, which accounts for about 15 percent of total global remittances, at $69 billion in 2017 does not allow dual citizenship, or in Ethiopia for the case of Africa, much as it is one of the leading countries in Africa in remittance inflows, and in recent years issued a diaspora bond to finance its domestic infrastructure, also does not allow dual citizenship.

While in the 2018 DICOTA Convention, I got an opportunity to speak with champions and anchor investors in the Azania Capital Partners, a US-based Tanzanian Diaspora private equity management firm intending to manage mobilized funds, to among others, invest in financial instruments for economic development back home.

This is a good example worth of leaning by Tanzanian diaspora based on other countries, also worth further support by those in the US and here at home.

Mr Marwa is chief executive officer of the Dar es Salaam Stock Exchange Email: moremi@dse.co.tz