It’s time to repeal the remittances “Super Tax” on Africa

0

Remittances are the shining light of development policy. While debate rages in austerity-hit Western capitals about spending on aid, remittances cost tax-payers nothing. Remittances to developing countries are worth nearly half a trillion dollars – that’s three times the level of aid – and they’re rising fast, quadrupling since the turn of the century. And remittances work. It’s hard to imagine a more efficient targeting system than people sending money home to their own families and the facts bear that out; remittances are linked to improved economic, health and education outcomes. And as if those benefits weren’t enough, remittances are a huge driver of financial inclusion, acting as a gateway to banking for the people sending and receiving them.

But people sending money home to many parts of the world, particularly sub-Saharan Africa, are paying far too much. They face what is, in effect, a remittances ‘super tax’. A worker sending $200 from London to Lagos can pay fees of over 13%, more than fifty percent above the global average. And within Africa it’s even worse, sending money from South Africa to Malawi could cost upwards of 20%. Of course we all expect some fees for financial transactions but there is strong evidence that these costs are excessive and are restricting the poverty-zapping remittances that reach poorer countries. Reducing fees for sub-Saharan Africa to the global average for instance would mean an extra $1.3 billion reaching families in the region.

And we’re not moving nearly fast enough to reduce fees on remittances. We’ve known about the issue for a while; the G8 committed in 2009 to the ‘5×5 goal’ of reducing the global average fee for remittances to 5% within 5 years. But despite some progress, we’re still at close to 8% globally and 12% for sub-Saharan Africa. Indeed, if the cost of sending remittances could be reduced by just 5 percentage points relative to the value sent, remittance receipts in developing countries would receive over $20 billion dollars more each year than they do now. That amount of money could educate 18 million children and buy enough vaccines to prevent 8 million children dying from diseases like malaria.

To fix this situation, we need action on three fronts.

First and foremost, we need to increase competition in the global remittance market and empower migrants by helping them make informed choices about the services they use. This is probably the most effective way to drive down costs and will require action at all levels and in countries that are net senders and net recipients of remittances.

Read more at People Move

Share.

Comments are closed.