Remittances play a pivotal role in many African economies, significantly contributing to their Gross Domestic Product (GDP). In 2022, remittances accounted for an average of 7.6% of GDP in Western Africa, 6.8% in Eastern Africa, 4.4% in Northern Africa, 3.7% in Southern Africa, and 1.4% in Central Africa.[1]  The total value of remittances in Africa reached nearly $100 billion, with $20 billion being intra-Africa flows. North Africa received the largest share of remittances, followed by West Africa. Notably, three countries – Egypt ($31.5 billion), Nigeria ($21 billion), and Morocco ($10.4 billion) – accounted for 65% of the continent’s remittances in 2022 [2].

High Costs and the Need for Affordable Remittance Services

Despite the crucial role of remittances in Africa, the cost of sending money to the continent remains high, averaging 7.39% in Q3 2023[3] to send $200 which is well above the global average. Various factors contribute to these high costs, including limited competition, regulatory barriers, and underdeveloped financial infrastructure. The United Nations Sustainable Development Goals (SDGs) have set a target to reduce remittance costs to 3% by 2030, with no corridor charging more than 5%.[4] Although progress is still needed, costs have been declining in the top 10 corridors and across Africa since 2018. For instance, the cost of sending money from in Sub-Saharan Africa was 7.92% in Q2 2023 but fell to 7.39% by Q3 2023 [5], reflecting a positive trend towards more affordable remittance services.

The Rise of Mobile Money and Innovative Fintech Solutions

Mobile money has emerged as a game-changer in facilitating remittances in Africa. In West Africa, the average cost of sending remittances through mobile money is a mere 1.5%, significantly lower than traditional remittance channels such as banks (1.7%) and cash transfers (6%) [6]. Increased mobile money interoperability, streamlined legal frameworks, and ongoing efforts by the Pan-African Payment & Settlement System (PAPSS) are expected to further drive down costs across the region.

Outside the large mobile money operators such as Safaricom, MTN and Airtel, several players have emerged in the African remittance market, offering solutions to meet the growing demand for affordable and accessible remittance services. Zepz, a digital remittance company, has been at the forefront of leveraging technology to provide fast, secure, and cost-effective remittance solutions to over 130 countries, including many African nations. LemFi, a Nigerian fintech start-up, aims to bridge the gap between traditional banking and mobile money, enabling seamless cross-border transactions for its users. The cross-border payment app, Chipper Cash, allows users to send and receive money across several African countries and has recently partnered with TBD, a digital payment platform owned by Block, to expand its network to 40 countries on the continent. Nala, a Tanzanian fintech company, focuses on providing accessible and user-friendly remittance solutions, particularly for underserved populations in East Africa. South African remittance and financial services provider, Mukuru, enables money transfers to over 20 African countries and offers a range of financial services beyond remittances, such as banking and insurance products.

The Role of B2B Players in Facilitating Cross-Border Transactions

In addition to consumer-facing remittance providers, business-to-business (B2B) players contribute to the ecosystem by offering services that facilitate cross-border transactions and support the growth of the remittance market. CAB Plc, an emerging markets fintech company, provides payment processing, remittance, and other financial services to businesses, aiming to streamline their financial operations and manage cross-border transactions more efficiently. Onafriq, a network of networks payment gateway, enables convergence and interoperability between payment systems, including mobile money, with 500 million connected mobile wallets. Global B2B payments platform, VertoFX, helps businesses send and receive money across borders, including in Africa, offering competitive exchange rates and a user-friendly platform. While Cellulant, a pan-African payments company, offers a single API for businesses to collect payments and facilitate cross-border payments, integrating with various payment methods such as mobile money, bank transfers, and cards.

The Future of Remittances in Africa: Growth and Opportunities

Looking ahead, the growth of remittances in Africa is expected to continue. Based on the CAGR of 12.1% between 2019 and 2022, the formal African remittance market, which was valued at $100 billion in 2022 [7], could potentially reach $283 billion by 2035. The Informal remittance market is estimated to be 35% – 75% of formal channels with Sub-Saharan Africa on the higher side [8]. Assuming the top end, the total Sub-Saharan remittance market could be $500bn by 2035.

To fully capitalise on the opportunities in the African remittance market, stakeholders must collaborate to address the challenges and barriers that hinder growth and development. Reducing remittance costs should be a primary focus, which can be achieved by promoting competition, improving regulatory frameworks, and investing in financial infrastructure. This will create an enabling environment for remittance providers to offer more affordable services, benefiting both senders and recipients and contributing to economic growth and development.

Improving access to digital remittance services is another crucial aspect. While mobile money has made significant strides in Africa, there is still room for growth and expansion. Governments and private sector stakeholders should invest in digital infrastructure, such as mobile networks and internet connectivity, to ensure that more people can access digital remittance services. Promoting financial literacy and education can also help individuals understand and trust digital remittance channels, encouraging adoption and usage.

Remittances as a Gateway to Financial Inclusion

Financial inclusion is another key area that requires attention. Remittances can serve as a gateway to other financial services, such as savings accounts, credit, and insurance. By leveraging the remittance ecosystem to promote financial inclusion, African countries can empower individuals and businesses to participate in the formal economy, access financial services, and build financial resilience. This can be achieved through partnerships between remittance providers, financial institutions, and policymakers, creating an integrated ecosystem that supports financial inclusion.

Harnessing Innovation and Technology for the Future of Remittances

Furthermore, innovation and technology will continue to play a vital role in shaping the future of remittances in Africa. Fintech companies and start-ups are already driving change, introducing new solutions and business models that are transforming the remittance landscape. Governments and regulators should create an enabling environment for innovation, supporting the development and scaling of new technologies and business models through regulatory sandboxes, innovation hubs, and partnerships between the public and private sectors.

Collaboration for Sustainable Growth and Development

Remittances are a lifeline for many African households and economies, providing a crucial source of income and supporting economic growth and development. As the African remittance market continues to grow, it is essential to prioritise cost reduction, innovation, and financial inclusion to ensure that the benefits of remittances are maximised for the continent’s development. By addressing the challenges and barriers, and leveraging the opportunities presented by technology and innovation, Africa can harness the transformative power of remittances for sustainable development and economic growth. Stakeholders across the ecosystem, including governments, regulators, remittance providers, financial institutions, and development partners, must work together to create an enabling environment that supports the growth and development of the remittance market, ultimately benefiting the people and economies of Africa. The ability to harness remittance flows is particularly important at a time when the Sub-Saharan region is experiencing acute hard currency shortages.

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