The cradle of human civilisation continues to show immense promise. The world is taking notice of steady economic development within continental Africa and the potential of various African nations to become a shining beacon of progress and prosperity over the next decade.
Economy of Africa: Outlook 2020
Growth across the continent is expected to be moderate this year, with a mixed bag of prospects. Africa’s GDP in 2019 stood at 2.9% and Africa’s GDP for 2020 is slated to scale up to 3.2%. The economy of Africa is expected to accelerate modestly, thanks to a young and fast-growing population that drives robust private consumption; strengthening demand for African products at the global level, sustained investments in infrastructure development and increased crude output credited to new field development. About 40 developing nations across the globe are expected to post GDP growth rates above 5%, and of these, about 19 countries are from sub-Saharan Africa.
Economic growth in Africa is expected to remain uneven across the continent. As of 2019, World Bank reported that Nigeria, which was the best economy in Africa in 2019, along with Angola and South Africa make up about 60% of sub-Saharan African economy’s annual output.
African remittance market: Outlook 2020
Remittances are a key component of economic growth in Africa. A study conducted by Pew Research Centre revealed that 8 out of 10 fastest-growing expat populations are nationals of sub-Saharan Africa, who are likely to fuel cross-border remittance flows in the coming year.
It is estimated that over 25 million expats from the sub-Saharan region remitted a total of USD 46 billion in 2018 and this trend is expected to continue through 2020. For many nations, remittance income forms a significant source of foreign capital vis-à-vis GDP.
Here’s a quick look at the factors that will impact diaspora remittances to Africa this year:
African Continental Free Trade Agreement
The sub-Saharan Africa economy and forex reserves are expected to gain a fillip with the ratification of the African Continental Free Trade Agreement (AfCFTA), which will establish the largest free trade zone in the world, aimed at boosting intra-African trade.
Ideally the 100% liberalised trade zone can raise intra-Africa exports by 33% and increase employment rates by 1.2% across the continent, enabling a greater flow of human capital and remittances across trading nations. This move is expected to push the African economy beyond the three-trillion dollar mark by 2030.
Movement of oil prices
Rising oil prices and employment opportunities in OCED countries will have a direct impact on African remittances in 2020. Remittance inflows to many countries such as Egypt, Nigeria, Angola, Libya, etc. are pro-cyclical with the price movement of oil, hence any changes in carbon fuel prices, movement in global currencies, trade disputes will have a significant effect on national and continental Africa remittance income as work prospects and wages of emigrants get affected.
Egypt Bill Payment Market
Egypt was the fifth-largest global recipient of inward remittances for 2018, at USD 26.4 billion, and the largest Africa remittance receiver. Almost 70% of Egypt’s remittance income comes from GCC countries, accounting for about 5% of the country’s GDP.
The introduction of the Egypt Bill Payment Market is expected to drive deeper fintech penetration. It will not only promote a cashless economy but also have a positive impact on the money transfer, bill payment, and remittance processes.
Strategic implementation of NiDCOM
Nigeria, the largest economy of Africa, accounts for over a third of expat remittance inflows to sub-Saharan Africa. The major chunk of remittances to Nigeria flow in from the US, which accounts for about 30%. The UK, Germany, Italy, Switzerland, Saudi Arabia, the UAE, Cameroon, Russia, and China are among other major contributors.
The strategic implementation of NiDCOM (Nigerians in Diaspora Commission) is expected to provide major cues for remittance growth in Nigeria in 2020. NiDCOM intends to formulate a strategy that will incentivise emigrant Nigerians to invest in the macro-economic growth of the country.
Kenyan Diaspora Homecoming Convention
Kenya is the fourth-largest recipient of remittances in Africa, and this income is the largest source of foreign exchange for the country. However, remittances account for only 3% of the country’s GDP. In a bid to incentivise diaspora remittances, Kenya might consider offering tax breaks, issue long-term bonds, and improve guarantee and risk mitigation protocols so that emigrants see value in investing their funds back home.
Fintech policy implementation and digitisation
As per the IMF, mobile money accounts are the way forward for a financially inclusive Africa. Investments in payments and remittance technology already account for 40% of all fintech investment in the region.
More widespread adoption of mobile money will not only allow millions of Africans in underserved regions to receive funds critical for micro-economic activity but will also allow expats to circumvent poor banking infrastructure and exorbitant remittance fees, which is still among the highest in the world.
High remittance fees, inexplicably long transfer times, and multiple intermediaries had cost Africa over USD 1.8 billion in 2019. Money transfer organisations like Xpress Money are working hard to bring transfer fees in Africa aligned with the UN’s Sustainable Development Goals (SDG) 2030.
Xpress Money provides cash payout, account credit and mobile wallet services to an ever evolving customer base across the continent. Encouraging collaborations between governments, banks, fintech providers, and trusted money transfer organisations can help maximise the potential of an interoperable financial system, of which remittance structures are a key part.
