28 November 2012

Rwanda: High Transfer Costs Hinder Remittances - Report

Photo: Maria Font de Matas/IRIN
A migrant worker (file photo).

Governments of the Least Developed Countries (LDCs) should embark on a reduction of transfer costs of remittances if money sent home by their nationals in the Diaspora is to make an impact on their economies, a new report has said.

The report, released by United Nations Conference on Trade and Development (UNCTAD) and titled "Harnessing Remittances and Diaspora Knowledge to build Productive Capacities", indicates that costs in LDCs are as high as 20 per cent of the amount transferred which is about a third more than the global average.

"Remittances are significant private financial resources for households in countries of origin stressing the need for further efforts to lower the transaction costs of remittances and to create opportunities for development oriented investments," Andrew Mold, an official with the UN Economic Commission for Africa (UNECA) sub-regional office for eastern African, said at the launch of the report yesterday.

Remittances are considered a significant source of external financing for LDCs and should be mobilised for expansion and diversification of productive capacities among the countries.

The report further shows that remittances to LDCs grew from US$3.5 billion in 1990 to $27 billion in 2011. The increase was accelerated by the rise in the number of emigrants from 19 million in 2000 to 27 million in 2010.

However, despite the financial crisis that hit much of the world in saw a decline in remittances in most developing countries.

It recommends increase in competition between service providers, reduction in the cost of remitting money, boosting the use of mobile payment as well as promotion of partnerships between banks and microfinance institutions.

Recent statistics in Rwanda indicate that remittances from Rwandans living abroad reached $80 million within the first six months of the year.

According to official figures from the Ministry of Foreign Affairs, Rwandans living abroad shipped in $539.2 million over the last six years, which peaked at $166.2m year on year in 2011, up from $25.1m in 2006.

An official from the Bank of Kigali, speaking on condition of anonymity, said that tariff varies for Rwandans in Diaspora wishing to send money back home.

"It depends, for example, on using Western Union at Bank of Kigali. If someone sends $7,500, the charges are $317 and it is the same charge in almost all banks."

The report further states that it was prudent for LDCs to put more emphasis in organising the Diaspora to increase remittances.

Rwandans in Diaspora have always been active in participating in development programmes back home with the most recent one being the Agaciro Development Fund, a solidarity fund initiated to improve the level of financial autonomy of the country.

Also highlighted in the report was the increase in brain drain, now 54 per cent higher than in 2000. This indicates that some two million highly educated nationals from LDCs live abroad.

The most popular destination countries for the emigrants from LDCs include United States, Saudi Arabia, India, Canada and United Kingdom. The worst affected countries are Haiti, Eritrea, Somalia, Rwanda, Uganda, Burundi and Democratic Republic of Congo.

"If you're losing skilled labour, it's a very big problem and it will impact the country," Mold said.

With a high brain drain rate, countries spend a lot of money on hiring external specialists instead of relatively affordable nationals. Most experts in LDCs migrate to more developed countries owing to poor pay in the countries of origin, political instabilities, among others.

LDCs still face a big challenge on how to handle increasing brain drain as they cannot limit their nationals from moving abroad, the report adds.

This means that unless proper mechanisms are put in place, these countries shall continue to suffer the consequences, it adds.

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