Sub-Saharan Africa has witnessed a remarkable surge in diaspora remittances, surpassing and nearly doubling Foreign Direct Investment (FDI) in the region. In 2019, remittance flows to sub-Saharan Africa reached a recorded USD 48 billion, with Nigeria alone receiving half of this total.
According to a recent assessment by the East Africa Community (EAC) based on a World Bank report, Kenya emerges as the leader in diaspora remittances in East Africa, followed by Tanzania, which lags despite a population boom. A discussion paper explores the remittance disparities within the EAC and proposes measures for Tanzania to address this situation.
The global impact of diaspora remittances has been significant, with remittances to low and middle-income countries (LMICs) reaching an estimated USD 626 billion in 2022, reflecting a 5% growth. In 2023, the remittance flows to LMICs were projected to hit USD 669 billion, indicating the resilience of labor markets in advanced economies and Gulf Cooperation Council countries.
Remittances play a crucial role in alleviating poverty, improving nutritional outcomes, and supporting education in disadvantaged households. They contribute to building resilience in recipient households, financing better housing, and mitigating the impact of disasters. Additionally, remittances have been associated with a decline in petty crimes related to economic necessity.
In 2022, remittances to Sub-Saharan Africa were estimated at USD 53 billion, marking a 5.2% increase compared to 2020 but lower than the 16.4% growth observed in 2019. The region faces challenges from concurrent crises, such as severe drought and spikes in global energy and food commodity prices.
Comparatively, Sub-Saharan Africa received USD 30.66 billion in FDI in 2022, according to the World Bank, underscoring the economic significance of remittances. The cost of sending USD 200 across international borders to LMICs remained high at 6% on average in the second quarter of 2022, with digital channels accounting for less than 1% of total transaction volume.
The EAC has experienced a notable rise in remittances, reaching USD 9.4 billion in 2022, emphasizing the need for mechanisms to reduce transfer costs and enhance economic growth in partner states.
Diaspora remittance distribution within East Africa reveals varying figures based on the Tanzanian shilling, with Kenya leading at 10 trillion, followed by Somalia (4 trillion), DRC (3.2 trillion), Uganda (3 trillion), South Sudan (2.7 trillion), Rwanda (1.3 trillion), Tanzania (791 billion), and Burundi (114 billion).
Despite the potential economic benefits of diaspora remittances, Tanzania faces challenges in maximizing its share due to factors such as the number of diaspora employees, lack of dual citizenship rights, limitations in money transfer systems, and insufficient efforts to guide remittances into productive sectors.
The Tanzanian government is urged to take immediate action by establishing a dedicated ministry to address diaspora challenges, introducing low-cost digital platforms for efficient money transfers, and promoting dual citizenship to enhance national loyalty. Urgent measures are necessary to tap into the opportunities presented by this growing industry, fostering economic development and addressing the welfare of Tanzanians abroad.