Can Diaspora remittances save Zimbabwe from economic challenges?

13 Jan, 2019 - 00:01 0 Views

The Sunday News

Butler Tambo

RECENTLY social media was abuzz with stories of the Government intending to tax its Diaspora population and the story went on to say that those who refused this move by the Government would lose their citizenship (of course not true). Whether this story was true or false is not the subject of this article, but the issue of Diaspora remittance is of so much importance now as the country has been facing foreign currency shortages.

Using our own resources and getting funds for the development of our local economy from our own citizens who are strewn around the globe becomes of paramount importance and one of our last options if we are to keep this economy afloat.

Suffice to say trying to tax Diasporans would face massive resistance and a still birth and the Government if at all they were considering the move should have a serious rethink. In this article, however, one seeks to look at the historical trends of migration, the value of Diaspora remittances into the country and the challenges of quantifying this source of income for the country.

Historical overview of migration patterns of Zimbabweans

There is a need for one to understand the historical perspective of regional migration dynamics as pertains to Zimbabwe first if one is to understand what can be done to harness the resources and potential of funds sent by our brothers and sisters abroad. While out-migration became a flood from 2000, five overlapping phases of out-migration from Zimbabwe beginning in the 1960s were identified by Professor Daniel Makina in his 2008 article,The Impact of Regional Migration and Remittances on Development: The Case of Zimbabwe.

The first phase involved the migration of political exiles to neighbouring countries (Botswana, Mozambique, Tanzania and Zambia), and labour migration to South Africa to work in the gold mines (Wenela days as they have come to be known). The exodus of refugees and exiles from Zimbabwe to Botswana, Zambia and Mozambique during the liberation war reached its peak in the period between 1977 and 1978, such that by 1979 it was estimated that there were over 210 000 Zimbabwean refugees in these countries.

The second phase involved white Zimbabweans fleeing military call-up resulting from the war of liberation, and those who feared retribution on attainment of independence. The white population of 232 000 in mid-1979 was estimated to have fallen to about 80 000 by 1990. The third phase of migration emanated from the post-independence conflict in Matabeleland and parts of the Midlands. This conflict is estimated to have led to the emigration of 4 000 to 5 000 refugees to Botswana, South Africa and further abroad.

The fourth phase of migration is said to have resulted from the negative effects of the IMF/ World Bank Economic Structural Adjustment Programme (Esap) introduced in 1990. This programme led to widespread economic hardships that led many professionals, such as teachers, nurses and doctors, to leave the country in search of greener pastures abroad.

The fifth phase of migration is associated with the exodus that started in earnest in 2000, as the economic situation deteriorated, Zimbabweans responded by trekking out of the country in large numbers. The destinations have varied from nearby southern African countries to as far away as Canada, New Zealand, Australia, the United Kingdom and the USA (Makina, 2008).
Diaspora remittances vs FDI globally and in Zimbabwe

According to World Bank (2016) global remittance flows — the money sent by migrants to their home countries, mostly to their remaining families — in 2015 were estimated to have exceeded US$601 billion. In addition, developing countries were estimated to have received about $441 billion of this total amount which was equivalent to almost three times the amount of official development assistance. Moreover, remittances constituted more than 10 percent of Gross Domestic Product in some 25 developing countries.

Remittances to Sub-Saharan Africa are estimated to grow by 9,8 percent from $41 billion in 2017 to $45 billion in 2018. Projections indicate that remittances to the region will keep increasing, but at a lower rate, to $47 billion by 2019. Looking at remittances as a share of GDP, the Gambia has the largest share, followed by Comoros, Lesotho, Senegal, Liberia, Cape Verde, Zimbabwe, Togo, Ghana, and Nigeria.

The top 10 nations that get the most money from their Diaspora, behind Nigeria ($25 billion), Ghana ($3.8 billion), Senegal ($2,7 billion), Kenya ($2,1 billion), Zimbabwe ($1,9 billion), Mali ($1 billion), South Africa ($900 million), Uganda ($800 million) and Ethiopia ($500 million).

Zimbabwe has been receiving $1,85 billion from the Diaspora over the past three years, a recent World Bank report has revealed. The report, Migration and Remittances, Recent Developments and Outlook, estimates that remittances were well under US$1,9billion, the same as in 2017 and 2016. This is down from a peak of US$2 billion realised in 2015. Even as this amount has gone down it still outweighs foreign direct investment (FDI) into the country as my article last week noted that between January and June 2014, Zimbabwe had attracted a paltry US$67 million compared to US$165 million in the same period the previous year (Reserve Bank of Zimbabwe August 2014 Monetary Policy Statement). In the 10 months to October 2014, the country had received foreign direct investment (FDI) amounting to US$146,6 million compared to US$311,3 million during the same period in 2013, a marked decline of over 50 percent.

In 2015, I note in the same article from last week that Africa received FDI of over US$82 billion with Mozambique getting US$8 billion of it, that is 10 percent of FDI inflows into Africa, with Zambia receiving $8 billion in FDI between 1980 and 2013, Mozambique $16 billion but only $1,8 billion for Zimbabwe.

Challenges of recording remittance flows into Zimbabwe
An estimated four million Zimbabweans live in the Diaspora, in countries such as United Kingdom, USA, Australia and New Zealand. The highest number is in South Africa with nearly 2,2 million people. The magnitude of remittance inflows to Zimbabwe is relatively unknown, however, because these flows largely occur through informal channels (for instance in some cases the monies come through the popular omalayitsha. Remittances officially reported by the Reserve Bank of Zimbabwe (RBZ) go through designated money transfer agencies (MTAs), like your Western Union, Money Gram, Mukuru, World Remit, among others.

The fact that most remittance flows are not recorded, or by-pass formal structures, presents several challenges for both analysts and policy makers. Using a range of methodologies, the International Fund for Agricultural Development (IFAD) reported that in 2007 Zimbabwe received US$361 million in monetary remittances, excluding in-kind transfers. This represented 7,2 percent of the country’s 2007 GDP.

Remittances are difficult to measure accurately. Most measures use official balance of payments (BOP) or Central Bank data, which rely on wire transfer flows officially reported by financial institutions. Estimates of remittances derived from such data usually underestimate actual remittance flows.

Importance of Diaspora funds to Zimbabwe
Our greatest challenge as a country has been on channelling funds remitted back home into investments that can boost economic growth and improve the country’s forex reserves. So far most of the remitted funds have been going into domestic consumption, largely because of liquidity challenges affecting households and the country at large.

Current engagements of the Diaspora community by President Mnangagwa and RBZ has shown that the Diaspora community is keen to invest in Zimbabwe in areas such as transport, agriculture processing, health services, insurance, manufacturing and tourism apart from the obvious property sector. Remittances have a potential to improve our nostro account balances, finance infrastructure projects locally and guarantee foreign borrowings or financial instruments.

To channel remittances into the formal economy and spur economic growth in Zimbabwe, there is a need to build their confidence in local financial systems and craft policies that incentivise an expatriate to think of investment instead of spending. Remittances are a stable and significant source of external financing for developing countries, overshadowing official development assistance, private debt and portfolio equity as seen in the comparison above.

India, Israel and Ethiopia have taken advantage of large inflows of remittance to issue Diaspora bonds to raise project finance for public sector investment programmes. Israel for instance raised about $25 billion within a 30-year period through its diaspora.

The major question for Zimbabwe to ask then is how Diaspora funds can be harnessed basing on case studies from other countries that have successfully benefited from these funds and in the next article I will thrive to look at some cases that Zimbabwe can learn from so that this vital source of funds can meaningfully develop the nation.

Butler Tambo is a Policy Analyst who can be contacted on [email protected]

Share This:

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds