Head of UNDP Africa on remittances as a tool for financing development

Jul 14, 2015

Mr. Abdoulaye Mar Dieye
Assistant Administrator and Director, Regional Bureau for Africa
IGAD High Level Ministerial Roundtable Discussion on Remittances as a tool for Financing Development and meeting Food Security

H.E. Mr. Hassan Sheikh Mahamoud, President of Somalia,
H.E. Sufian Ahmed, Minister for Finance and Economic Development of Ethiopia,
H.E. Amb. Mahboub Maalim, Executive Secretary of IGAD,
Hon. Hussein Halane, IGAD Special Representative on Remittances,               
Representatives from IGAD Member States,
Distinguished Partners,
Ladies and Gentlemen,

I am very pleased to be speaking at this High Level Ministerial Roundtable Discussion on Remittances as a tool for Financing Development and meeting Food Security, organized by the Inter-Governmental Agency on Development (IGAD).

In September, Heads of State and Government will adopt a new and ambitious global development agenda, the Sustainable Development Goals (SDGs). Its successful implementation will require an equally ambitious financing framework, which is currently under deliberation, here in Addis Ababa. Under the new development framework, all sources of finance are expected to make a contribution to sustainable development; they are complements and not substitutes for each other.

While acknowledging that remittances cannot be equated to other international financial flows, such as FDI, ODA or other public sources of finance, the Addis Ababa Action Agenda of the 3rd International Conference on Financing for Development recognizes the role that they play for sustainable development. Africa has over 30 million of its people living abroad.   African migrants, outside and within Africa, contribute to the social and economic development of both origin and destination countries. For many countries in Africa, the remittances that migrants send back to their families are becoming an increasingly important source of development finance. In 2013, remittances to Sub-Saharan Africa reached 32 billion USD,   representing 71 per cent of total ODA disbursements to the region in the same year.   While Nigeria remains the largest recipient,  remittances to countries in Eastern Africa, and particularly in Kenya and Uganda, are rapidly growing. Overall, it is expected that remittances to sub-Saharan African will reach 41 billion USD in 2016.  

We, in UNDP, have found that migrants’ remittances are vital in improving the livelihoods of millions of people in the developing world. Remittances contribute to the welfare, food security, and health of recipient families.   However, the benefits of remittances go far beyond the immediate family members. When they are invested for establishing new local businesses, or when they are spent in ways that generate local employment, such as building houses, remittances benefit entire communities of origin of migrants.

Remittances also play an important role at a time of increased volatility, helping people to cope with economic and environmental shocks and crises. The regular flow of remittances provide a lifeline and safety net for people exposed to food security crisis.

While the development opportunities of remittances are well recognized, there are challenges that need to be urgently addressed, if Africa is to leverage the full potential of this critical source of finance for sustainable development.

Many of the benefits of remittance transfers are lost in intermediation costs. As the world's poorest region, Africa is paying the world's highest fees on money transfers. For every 100 USD that African migrants send home, they pay 12 USD in fees to financial institutions. Some remittance corridors within sub-Saharan Africa are even more expensive: sending 100 USD from Ghana to Nigeria can cost up to 27 USD in fees.   This issue is compounded by stringent regulations on anti–money laundering and combating the financing of terror, which hinder the transfer of remittances through formal channels.

If charges were reduced to world average levels, Africa could receive up to 1.8 billion of additional remittances a year to invest on sustainable development. We are therefore very encouraged by the commitments reflected in the Addis Ababa Action Agenda, to reduce the average costs of transfers to less than 3 per cent, and to ensure that no remittance corridor requires charges higher than 5 per cent.  Reducing the transaction costs of migrant remittances is also reflected in the Sustainable Development Goals.

As the post-2015 agenda becomes the compass guiding development policy over  the next fifteen years, more countries, both sending and receiving countries, should scale-up efforts towards reducing transfer costs, by promoting competition of money transfer operators and encouraging innovation.

UNDP has been working with countries in Africa to this end, promoting the use of migrant remittances for development and facilitating their transfer to recipient countries.

In Eritrea, Ethiopia, Nigeria, Senegal, Somalia and other countries, UNDP has supported the design of innovative investments opportunities for diaspora. In Lesotho, Nigeria and Senegal, UNDP has developed diaspora investment models to leverage remittances for local business development.

Following the closing of wire transfer services to Somali diaspora in the wake of the September 2011 events, UNDP provided support for establishing the Somali Financial Services Association to safeguard the flow of remittances to Somalia.  UNDP also helped establishing the Somali Money Transmitters Association and supported key remittance companies comply with international anti-money-laundering regulations and procedures.

Going forward, UNDP, in partnership with IGAD, is committed to continue supporting countries in the Horn of Africa region to leverage the full potential of technology-based solutions that facilitate the channeling of remittances to African migrants’ home countries. UNDP will also work closely with IGAD and its Member States, for the development of a policy agenda on remittances, which brings will advance the commitment of the Addis Ababa Action Agenda and the post-2015 development agenda.

Achieving the sustainable development goals will call for aligning every dollar of public and private resources with sustainable development. Reducing the costs of transfer of remittances and promoting their productive use by channeling them into priority sectors through innovative finance mechanisms will help countries in Africa leverage the full potential of migrant remittances for sustainable development and enhanced resilience to food insecurity.

I thank you for your attention.

UNDP Around the world

You are at UNDP Africa 
Go to UNDP Global