Lost in intermediationHow excessive charges undermine the benefits of remittances for AfricaKevin Watkins and Maria Quattri

Report

April 2014

Overseas Development Institute203 Blackfriars RoadLondon SE1 8NJ

Tel. +44 (0) 20 7922 0300 Fax. +44 (0) 20 7922 0399 E-mail: info@odi.org.uk

www.odi.org www.odi.org/facebook www.odi.org/twitter

Readers are encouraged to reproduce material from ODI Reports for their own publications, as long as they are not being sold commercially. As copyright holder, ODI requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the ODI website. The views presented in this paper are those of the author(s) and do not necessarily represent the views of ODI.

© Overseas Development Institute 2014. This work is licensed under a Creative Commons Attribution-NonCommercial Licence (CC BY-NC 3.0).

ISSN: 2052-7209

We are grateful for the financial support of Comic Relief and Unbound Philanthropy in conducting this research. The views expressed are those of the authors and do not necessarily reflect the views of ODI, Comic Relief or Unbound Philanthropy.

All ODI Reports are available from www.odi.org

Cover photo: Skip Russell, Malawi

April 2014

developmentprogress.org

• RemittancesfromAfricanmigrantsplayavitalroleinsupportinghealth,education,food

securityandproductiveinvestmentinagriculture.Yetmanyofthebenefitsofremittance

transfersarelostinintermediationasaresultofhighcharges.Africa’sdiasporapays12%to

send$200–almostdoubletheglobalaverage.

• Ineffect,Africansarepayingaremittance‘supertax’.Reducingchargestoworldaverage

levelsandthe5%G8targetwouldincreasetransfersby$1.8billionannually.Thatfigureis

equivalenttothesub-SaharanAfricancostofpayingfortheeducationofsome14million

primaryschoolagechildren–halfoftheout-of-schooltotal;improvedsanitationfor8

millionpeople;orcleanwaterfor21million.

• Weakcompetition,concentrationofmarketpowerandflawedfinancialregulationall

contributetohighremittancecharges.Justtwomoneytransferoperators(MTOs)–Western

UnionandMoneyGram–accountfortwo-thirdsofremittancetransfers.Weconservatively

estimatethatthetwocompaniesaccountfor$586millionofthelossassociatedwiththe

remittance‘supertax’,partofitthroughopaqueforeigncurrencycharges.‘Exclusivity

agreements’betweenMTOs,theiragentsandbanksrestrictcompetitionanddriveupprices,

asdoAfricanfinancialregulationsfavouringbanksoverotherremittancepaymentoptions.

• Governmentsandregulatoryauthoritiesinsendingcountriesshoulddofarmoretopromote

competitionandencourageinnovation.Financialregulators–suchastheUK’sFinancial

ConductAuthority–andlegislativebodiesshouldactivelyreviewthepracticesofMTOs.All

regulatorsshoulddemandhigherstandardsoftransparencyforforeignexchangecharges,as

envisagedintheDodd-FranklegislationadoptedbytheUS.Africangovernmentsshoulddo

moretosecureabetterremittancedealfortheircitizens.Prohibitingexclusivityagreementsis

oneimmediatepriority,alongwithendingthestrangleholdofbanksonremittancepayments.

Key messages

Report

Shaping policy for development odi.org

Lost in intermediationHow excessive charges undermine the benefits of remittances for AfricaKevin Watkins and Maria Quattri

AbbreviationsAIR African Institute for Remittances

DRC Democratic Republic of Congo

EAP East Asia and the Pacific

FAO Food and Agriculture Organization of the United Nations

FATF Financial Action Task Force

FDI Foreign Direct Investment

FinCEN Financial Crimes Enforcement Network

FX Foreign exchange

GDP Gross Domestic Product

IDA International Development Association (World Bank)

IFAD International Fund for Agricultural Development

IMF International Monetary Fund

LAC Latin America and the Caribbean

MENA Middle East and North Africa

MFI Micro-finance institution

MG MoneyGram

MTO Money transfer operator

ODA Official Development Assistance

OECD Organisation for Economic Co-operation and Development

OFAC Office of Foreign Assets Control

OMTI Orange Money Transfer International

RSP Remittance service provider

SA South Asia

SSA Sub-Saharan Africa

SWIFT Society for Worldwide Interbank Financial Telecommunications

UN United Nations

UNCTAD United Nations Conference on Trade and Development

UNESCO United Nations Educational, Scientific and Cultural Organization

UNHCR United Nations High Commissioner for Refugees

WU Western Union

Contents

Abbreviations 4

List of tables and figures 6

Executive summary 7

Introduction 9

1. Africa in the global remittance economy 10

2. Migrant remittances – wide-ranging benefits 14

3. The high cost of remittances to Africa 17

4. Unlocking the benefits of remittances for development 27

Conclusion 29

Technical annex 30

References 31

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 5

List of tables and figures

Tables

Table 1: Remittance flows to SSA 11

Table 2: Estimating the share of Western Union and MoneyGram in Africa’s remittance ‘super tax’ 21

Table 3: Current charges and implied losses through the remittance ‘super tax’ from the UK 22

Table 4: Cost of transferring $200, 3Q2013 24

Figures

Figure 1: Rising trends: actual and projected remittance flows to sub-Saharan Africa ($ billion) 10

Figure 2: Reported use of international remittances: Kenya and Nigeria (% of total remittances received) 15

Figure 3: Concentration of market power: % of pay-out locations by company, Western Union and MoneyGram 18

Figure 4: Average % cost of transferring $200 by type of remittance service provider 19

Figure 5: Average % cost of sending $200 by product type 19

Figure 6: Average % cost of transferring $200 by region 19

Figure 7: Africa’s disadvantage: % cost of transferring $200 20

Figure 8: % of pay-out locations by type of provider 20

Figure 9: % of MTO pay-out locations by company 20

Figure 10: Remittance charges from the G7 (excluding Japan): total average % cost of transferring $200 21

Figure 11: Western Union remittance charges to the UK: % cost of transferring £120 (or $200) for selected SSA countries 23

Figure 12: MoneyGram remittance charges from the UK: % cost of transferring £120 (or $200) to selected SSA countries 23

6 ODI Report

Executive summaryRemittances–themoneysenthomebymigrantworkers–play

avitalroleinAfrica.Theyhelptopayforhealth,educationand

productiveinvestmentinagriculture.Duringperiodsofcrisisthey

provideafinanciallifeline.Formanyeconomiesintheregion,

remittancetransfersnowoccupyanimportantpositioninthebalance

ofpayments.YetAfricaisfailingtosecurealloftheirpotential

benefits.Noregionfaceshigherchargesforremittancetransfers.

Ineffect,Africa’sdiasporafacea‘remittancesupertax’thathurts

familiesandholdsbackdevelopment.

Thereisnojustificationforthehighchargesincurredby

Africanmigrants.Inanageofmobilebanking,internettransfers

andrapidtechnologicalinnovation,noregionshouldbepaying

chargesatthelevelsreportedforAfrica.Inthisreportweargue

thatmarketconcentrationintheglobalmoneytransferindustry,

financialregulationinAfrica,andhighlevelsoffinancial

exclusionaredrivingupcosts.

RemittancestoAfricaarerising.In2013,transferstothe

regionwerevaluedat$32billion,oraround2%ofGDP.

Projectionsto2016suggestthatremittancescouldrisetoover

$41billion.Withaidsettostagnate,remittancesaresettoemerge

asanincreasinglyimportantsourceofexternalfinance.

ChargesonremittancestoAfricaarewellaboveglobalaverage

levels.Migrantssending$200homecanexpecttopay12%in

charges,whichisalmostdoubletheglobalaverage.Whilethe

governmentsoftheG8andtheG20havepledgedtoreduce

chargesto5%,thereisnoevidenceofanydeclineinthefees

incurredbyAfrica’sdiaspora.

RemittancecorridorswithinAfricahavesomeofthe

highestchargestructuresintheworld.Migrantworkersfrom

MozambiquesendingmoneyhomefromSouthAfrica,or

GhanaiansremittingmoneyfromNigeriacanfacechargeswellin

excessof20%.

WhydoesAfricafacesuchhighremittancecharges?That

questionisdifficulttoanswerbecauseofthehighlyopaque

natureofremittancemarketsandthecomplexrangeofproducts

available.Muchoftherelevantcommercialinformationneededto

establishdetailedstructuresisunavailable.

However,threefactorscombinetodriveupcharges.The

firstislimitedcompetition.Globalmarketsaredominatedby

anoligopolyofmoneytransferoperators(MTOs)andregional

marketsbyaduopoly:Justtwocompanies–WesternUnionand

MoneyGram–accountforanestimatedtwo-thirdsofremittance

pay-outlocationsinAfrica.Asinanymarket,limitedcompetition

isabarriertocostreductionandefficiencygains.Second,thereis

evidenceof‘exclusivityagreements’betweenMTOs,agentsand

banks.Theseagreementsrestrictcompetitioninanalreadyhighly

concentratedmarket.

Third,financialexclusionandpoorregulationinAfrica

escalatecosts.FewAfricanshaveaccesstoformalaccounts(which

limitsaccesstopay-outproviders)andmostgovernmentsrequire

paymentstotakeplacethroughbanks,mostofwhichcombine

highcostswithlimitedreachandlowefficiency.

Nomeasurewoulddomoretostrengthenthedevelopment

impactofremittancesthanadeepcutincharges.Cuttingthe

‘remittancesupertax’wouldenableAfrica’sdiasporatomake

abiggercontributiontheregion’sdevelopment.Itwouldalso

strengthenself-reliance.Unlikeaid,remittancesputmoney

directlyintopeople’spockets,providingasourceofinvestment

andsupportforconsumption.

Inthisreportweestimatetheadditionalfinancethatwouldbe

generatedunderarangeofcharge-reductionscenarios.Webuild

thesescenariosbycomparingcurrentchargesinAfricawithtwo

benchmarks:thecurrentglobalaveragechargeof7.8%andthe

5%targetchargesetbygovernments.Wetreatthegapbetween

currentchargesandthesebenchmarksasindicativeofthe

lower-andupper-boundestimatesforthe‘remittancesupertax’.

Convertingthatgapintofinancialterms,weestimatethatAfrica

islosingbetween$1.4billionand$2.3billionannuallyasaresult

ofhighremittancecharges.

Tracingthisimplicitlossthroughtheremittancesystem

isahazardousenterprise.Africa’sdiasporaislinkedto

families,friendsandcommunitiesthroughacomplexwebof

intermediaries.ThecommercialtermsonwhichMTOsinteract

withAfricanbanksarenotwidelyavailable.Similarly,thereal

costsassociatedwithregulatorycompliance,foreigncurrency

trade,agentfeesandotherdealingsarelargelyunknown.

Despitetheselimitationsitispossibletoderivesomeindicative

figures.Usingmarketshare(asdefinedbyshareofpayment

outlets)asaproxyforindicativesharesinthe‘remittancesuper

tax’,operationsinvolvingMTOswouldaccountforbetween$807

millionand$1.3billionofourestimatedgloballoss.Asmarket

leaders,WesternUnionandMoneyGramwouldaccountfor

$586millionoftherevenuelossassociatedwiththegapbetween

Africanandworldaveragecharges.

DetailedresearchfortheUnitedKingdomidentifiesanumber

ofdistinctivefeaturesoftheremittancemarketforAfrica.As

inotherremittance-sendingcountries,thechargesincurredby

Africa’sdiasporaarehighrelativetoglobalaveragecharges.

Usingoneofthemajorremittancechannels–credit/debitcard-

to-cash–weidentifywhatappearstobean‘Africacharge’–a

consistentfeeofaround8%forWesternUnionappliedacross

countriesregardlessofthesizeofthemarket,regulatorycostsor

marketrisk.Thesameanalysisconductedforcredit/debitcard

remittancesthroughMoneyGramrevealsthattherearemarked

variationsinthechargesappliedbythetwomajorMTOsin

thesamecountry.Thisissuggestiveoflimitedcompetitionor

marketsegmentationwithinthereceivingcountry,andimperfect

consumerinformation.EvidencefromtheUKidentifiesforeign

exchangeconversionfeesasasignificant,andoftenarbitrary,

shareofoverallcosts–informationonthesefeesisnotalways

providedtoconsumersinareadilyaccessibleform.

AsoneofthelargestsourcesofremittancetransferstoAfrica,

theUKcontributestothelossoffinancethroughhighcharges.

Some$5billionwasremittedtoAfricafromtheUKin2012.

ReducingaverageUKremittancecoststotheglobalaverage

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 7

wouldincreasetransfersby$85million,risingto$225million

ifchargeswereloweredto5%.Thebulkoftheselossescanbe

tracedtolargeMTOsintheUK.Onaconservativeestimate,

WesternUnionandMoneyGramsecure$49millioninpayments

throughchargesaboveworldmarketaverages.

Thepotentialfordevelopmentgainsthroughlowerremittance

chargescanbeillustratedbyreferencetocurrentaidflows.For

comparativepurposesweuseamid-rangefigurebetweenour

upper-boundandlower-boundestimatesof$1.8billion.Thisis

equivalenttohalfoftheaidprovidedtoAfricabytheUK,the

region’sthirdlargestbilateraldonor,orsome40%oftransfers

toAfricathroughtheWorldBank’sInternationalDevelopment

Association(IDA)–thelargestsourceofmultilateralaidforAfrica.

Viewedfromadifferentperspective,adiversionofrevenues

associatedwiththeremittancesuper-taxintoeducationwould

provide,atcurrentfinancinglevels,sufficientresourcestoput

around14millionprimaryschool-agedchildrenintoschool

–almosthalfoftheout-of-schoolpopulationfortheregion.

Alternatively,itcouldfinanceaccesstoimprovedsanitationfor8

millionpeople,ortheprovisionofsafewaterfor21millionpeople.

ThisreportcallsforanumberofmeasurestolowerAfrica’s

‘remittancesupertax’,including:

• InvestigationofglobalMTOsbyanti-trustbodiesintheEU

andtheUStoidentifyareasinwhichmarketconcentration

andcommercialpracticesareartificiallyinflatingcharges.

• Greatertransparencyintheprovisionofinformationon

foreign-exchangeconversioncharges,drawingontheexample

ofDodd-FranklegislationintheUnitedStates.

• RegulatoryreforminAfricatorevoke‘exclusivityagreements’

betweenMTOsontheoneside,andbanksandagentsonthe

other,andpromotetheuseofmicro-financeinstitutionsand

postofficesasremittancepay-outagencies.Governmentsand

MTOsshouldworktopromotemobilebankingasastrategy

tosupportthedevelopmentofmoreinclusivefinancialsystems.

• EngagementbyAfrica’sdiasporaandwidercivil-societygroups

toputremittancesatthecentreofthedevelopmentagenda.The

publicinterestsrepresentedbyAfrica’sdiasporaandremittance

receiversshouldbeplacedabovethecommercialinterestsof

MTOsandbanksintheregulationofremittancesystems.

8 ODI Report

Economicremittancesfrommigrantsareanimportantand

growingsourceoffinanceforAfrica.Theseremittancesrepresent

asourceofopportunityand,formany,afinanciallifelineduring

periodsofhardship.YetAfricaisfailingtorealisethefull

potentialofremittances.

MigrantsfromAfrica,theworld’spoorestregion,facethe

highestchargesonremittances.Atanaverageofjustover12%,

thesechargesarealmostdoubletheglobalaverage(excluding

Africa).Ifremittancechargeswerereduced,therewouldbea

doublebenefit:theoverallflowoftransferswouldincreaseanda

greatershareofthetransferwouldreachtheintendedbeneficiaries.

TheexcessivechargesleviedonAfricanremittancesraisewider

questions.Migrantworkersmakeenormoussacrificestosecure

thehigherincomethatcomeswithchangedlocation.Theybring

far-reachingbenefitstodestinationcountries,generatingeconomic

growth,meetingdemandinlabourmarketsandcreatingmore

diversesocieties.Manytakeconsiderablerisksinmovingto

higher-incomecountries.Yettheinternationalcommunityand

Africa’sowngovernmentsarefailingtosupporttheireffortsto

improvetheirlives,supporttheirfamilies,andpromoteself-reliant

development.

Thispapermakesthecaseforputtingremittancesatthecentre

ofinternationalcooperationondevelopment.Itisdividedinto

fourparts.ThefirstlooksatthelevelofremittancestoAfricaand

atthedriversofmigration.Part2providesasummaryoverview

ofevidenceonthebenefitsofmigration.Part3looksatthe

highcostsofremittancestoAfrica,examiningunderlyingglobal

andregionalremittance-marketstructuresandhighlightingthe

dominationoftwoglobalmoneytransferoperators(MTOs).

Whilethereisnoevidenceofcollusivepricingorothercartel-type

behaviours,theremittancemarketischaracterisedbylimited

competition,restrictivebusinesspracticesandextensiverent-

seeking.Part4looksatstrategiestoincreasethedevelopment

impactofremittances.Whilehighlightingawiderangeof

potentiallyinnovativeoptions–includingdiasporabondissues

andpartnershipsbetweendiasporaandlocalgovernments–it

offersasimplemessage:namely,nomeasurewouldhaveagreater

impactthandeepcutsinthecostsofintermediation.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 9

Introduction

Remittanceflowstodevelopingcountrieshaveincreasedrapidly

overthepastdecade.Theyreached$414billionin2013–some

fourtimesthelevelin2000(WorldBank,2013a).Toputthese

transfersincontext,theyrepresentaroundthreetimesthelevel

ofaid.Inaddition,remittancetransfers–unlikeaid–areon

anupwardtrajectoryandareprojectedtoreach$540billionby

2016(WorldBank,2013a).

Africahasbeenpartofaglobalremittanceboom.In2013,

Africanmigrantsremittedaround$32billion–equivalentto

around2%ofregionalGDP(WorldBank,2014).Although

sub-SaharanAfrica(SSA)currentlyreceivesaround8%of

reportedglobalremittances,transfersgrewbysome6%between

2012and2013.WorldBankprojectionssuggestthatremittances

totheregionwillgrowataround8.6%overthenextfew

years,reaching$41billionby2016(Figure 1).Whileofficial

developmentassistance(ODA)stillexceedsremittancetransfers,

thegapwillnarrowiftheseprojectionsarecorrect.

Despitetheprojectedgrowthestimates,remittancetransfersto

Africahavebeenincreasingfarmoreslowlythanthosetoother

regions.From2009to2012,remittancestoSSAweregrowing

atanaveragerateofjust2%ayear(WorldBank,2013a).This

islessthanhalfoftheaverageforalldevelopingregionsand

justone-fifthoftheincreasereportedforSouthAsia.OnlyLatin

Americahasreportedalowerrateofincrease,reflectingthe

impactoftheUSrecession.ThehighchargesincurredbyAfrican

migrants,thefocusofthispaper,havealmostcertainlylimited

SSA’srateofgrowth.

LevelsofdependenceonremittancesvaryacrossAfrica(Table 1).Nigeriaaccountsfor68%oftotaltransferstotheregion–

some$20billionin2012–andistheworld’sfifthlargestrecipient

inabsoluteterms(WorldBank,2013a).Fourcountriesreport

remittancetransfersinexcessof$1billion:Nigeria,Senegal,

KenyaandSudan.MeasuringremittancesasashareofGDP

providesadifferentperspective.TherearenineSSAcountries

intheregionforwhichremittancesconstitutemorethan5%of

GDP,risingtoover20%forLesothoandLiberia.

Dataonremittanceshavetobetreatedwithcaution.Reporting

systemssufferfromanumberofdeficiencies,mostofwhich

contributetounder-estimation.1Balance-of-paymentsaccounts

inmanycountriescaptureonlypartofremittancetransfersfrom

richcountries.Thereisalsoalargeinformalremittancesystem

thatoperatesthroughtraditionalhawala (informaltransfer)

providers.Inaddition,onlyasmallshareofthetransferassociated

withintra-regionalmigrationiscapturedinofficialdata.This

isbecausetransfersthroughpersonaldeliveryandinformal

arrangementsdominate,reflectingthehighchargesassociatedwith

intra-Africanremittances.SSAisbelievedtohavethehighestshare

ofremittanceschannelledthroughunregulatedmodesoftransfer.

Indeed,surveysofmigrantsandremittancerecipientsandother

secondary sourcessuggestthatunregulatedtransferscouldexceed

officialtransfers(AIR,2013).

Patterns of migrationRemittancetransfersareasub-setofconsumertransfersacross

countries.Intermsofreportingconventions,theyare‘personal

transfers’tofriendsandrelativeswholiveabroad.Mostofthe

sendersareforeign-born,thoughsecond-generationdiaspora

remittancesarealsosignificant.Thetransfersoccurthrough

electronicpaymentstodesignatedrecipientsinreceivingcountries

throughremittanceserviceproviders(RSPs).2

Thebulkofremittancetransferscanbetracedbacktothe

globalphenomenonofmigrantssendingmoneybacktotheir

countryoforigin.Itfollowsthatanunderstandingofwhypeople

1. Africa in the global remittance economy

1 Remittancedataaredrawnprincipallyfromcentralbankreportingsystemsthatoftenfailtoidentifyremittancetransfers.Moreimportantly,theydonotcapturetheunknown,butalmostcertainlyverylarge,transfersthatoccurthroughinformalarrangements.Ontheunder-reportingofremittancessee,forinstance,SanderandMunzeleMainbo,2003,andShonkwileretal.,2008.

10 ODI Report

Figure 1: Rising trends: actual and projected remittance flows to sub-Saharan Africa ($ billion)

2009

2010

2011

2012

2013

e20

14f

2015

f20

16f

28

30

32

34

36

38

40

42

Source: World Bank Migration and Development Brief 21, October

2013.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 11

Table 1: Remittance flows to SSA

Millions of $ (2012) % of GDP (latest available year, 2010-2012)

Nigeria 20,568.29 Liberia 23.41

Senegal 1,366.85 Lesotho 22.64

Kenya 1,227.62 Gambia, The 15.37

Sudan 1,126.13 Senegal 11.43

Uganda 976.60 Togo 10.61

Lesotho 601.87 Cabo Verde 9.13

Ethiopia 524.20 Nigeria 7.86

Mali 444.45 Guinea-Bissau 5.49

Liberia 372.39 Mali 5.02

Côte d’Ivoire 325.09 Uganda 3.69

Togo 320.71 Kenya 2.98

Mauritius 246.59 Rwanda 2.57

Benin 179.18 São Tomé and Principe 2.41

Cape Verde 176.80 Benin 2.36

Rwanda 156.20 Niger 2.35

Ghana 151.50 Burundi 1.88

Burkina Faso 130.35 Côte d’Ivoire 1.63

Niger 122.36 Sierra Leone 1.61

Cameroon 109.22 Mozambique 1.55

Mozambique 99.12 Ethiopia 1.50

Gambia, The 89.25 Burkina Faso 1.31

Sierra Leone 79.01 Guinea 1.18

Tanzania 75.34 Swaziland 0.84

Guinea 74.77 Cameroon 0.83

Botswana 54.85 Sudan 0.68

Swaziland 46.89 Malawi 0.66

Zambia 45.55 Zambia 0.35

Guinea-Bissau 42.18 Ghana 0.34

Burundi 42.15 Tanzania 0.24

Seychelles 25.90 Botswana 0.13

Namibia 16.51 Namibia 0.12

Malawi 16.01 Seychelles 0.11

São Tomé and Principe 6.50 Mauritius 0.01

Angola 0.19 Angola 0.00

Sources: Data source for remittances in millions of dollars: World Bank Migration and Remittances Data, Bilateral Remittances Matrix 2012.

Data source for remittances as percentage of GDP: World Bank World Development Indicators (2014).

moveiscriticalforanyanalysisoftherelationshipbetween

migration,remittancesanddevelopment.MichaelClemensof

theCentreforGlobalDevelopmenthasarguedpersuasivelythat

migrationcanbethoughtofasafinancialstrategytodiversify

householdrisk(ClemensandOgden,2013).Thatstrategy

requirespeopletoabsorbup-frontinvestmentcostsinorderto

generateastreamoffuturerevenue.Viewedthroughthislens,

migrationisaninvestmentinhumancapitalthataimstohelp

householdsmanageriskandvulnerability,andremittancesarethe

pay-outfromthatcapital.Yet,asClemensnotes,migrationisnot

oftenstudiedasasubstitutefor,orcomplementto,otherfinancial

strategiesthatsupportdevelopment.

Peoplebearthecostsofmigrationpartlybecauseofconstraints

onotheralternatives,butalsobecauseofthepotentiallyhigh

returnsfromrelocationintoday’shighlyinter-connectedbut

unequalglobaleconomy.Thesimplearithmeticofaverageincome

gapshighlightsthepotentialforlargereturns.Intermsofreal

(PurchasingPowerParity)income,averageincomesintheUK

are22timeshigherthaninTanzania.Averageincomesinthe

DemocraticRepublicofCongoarearound1%ofthoseinBelgium.

IncomesinFranceare48timeshigherthaninNiger.Unsurprisingly,

againstthisbackdrop,theaverageannualremittancesentbyan

AfricanmigrantfromtheOECDin2009wasgreaterthanaverage

annualper-capitaincomeinSSA(MohapatraandRatha,2011).

Suchcomparisonsillustratetheconsequencesofthe‘accident

ofbirth’.Whenitcomestoopportunityandtheprospectsfor

alifefreeofpoverty,thethreemostpowerfuldeterminantsare

‘location,location,location’.Despitethewealthconvergence

thathasoccurredunderglobalisation,wealthdisparities

between countriesstillaccountforaroundthree-quartersof

globalinequality(LaknerandMilanovic,2013).Itfollowsthat

migration,farmorethanaidoreventrade,hasthepotentialtoact

asaforceforamoreequitablepatternofglobalisation.

ThisisespeciallytrueforAfrica.Whiletheregionhasnow

enjoyedsome15yearsofstrongeconomicgrowth,convergence

isstartingfromalowbase–andgrowthhasbeenuneven.For

the414millionpeopleinSSAlivingonlessthan$1.25aday

(WorldBank,2010),theopportunitytomigrate,ortoreceive

remittancesfromamigrantrelative,offersunparalleledbenefits.

AverageconsumptionamongAfrica’spoorisfarbelowthelevel

inotherregions,ataround$0.70centsaday.Securingajobon

theminimumwageintheUK(£6.31in2013oraround$10.40)

wouldrepresentanominalincomegainofaround1,400%for

someonelivingbelowthepovertylineinAfrica.

Migrationpolicyinrichcountriesisoneoftheprimarybarriers

tothebenefitsofmigration.AcrossEurope,governmentshavebeen

adoptinglegislationtorestrictunskilledmigrationandrepatriate

irregularmigrants.Thefailureofvariousschemestogetmigrants

toreturnhomethroughcashincentivesandmorestringentrulesis

indicativeofthevalueofmigrationtothoseinvolved.

Whileitisbeyondthescopeofthisreport,thereissomething

ofaparadoxinthecurrentdirectionofpoliciesincountries

receivingmigrants.Economicevidencesuggeststhatmigration

bestowssignificantbenefitsondestinationcountries,and

demographictrendsareincreasingthepotentialgainsovertime.

Yetratherthandeveloparegulatorysystemtomaximisethe

jointbenefitsofmigration,mostgovernmentsareconcernedto

appealtovotersinfluencedbyanti-immigrationparties,suchas

theUnitedKingdomIndependenceParty,theFrontNationalin

FranceandItaly’sNorthernLeague.

Currentapproachestomigrationraisefundamentalconcerns

atmanylevels.Forexample,manyrichcountrieshaveactively

recruitedhealthprofessionalsandotherskilledworkersfrom

Africa.Accordingtooneestimate,oneineveryfiveAfricans

withapost-secondaryeducationisnowworkinginanOECD

country–asignificantbraindrain(Guptaetal.,2007a).Yetrich

countrieshaveclosedthedooronpoorAfricanswiththemost

togain.Thesearepracticesthatactivelyreinforcetheveryglobal

inequalitiesthatdrivemigration.

Internationalmediaattentiontendstofocusonmigration

fromAfricaandotherdevelopingregionstorichcountries.Yet

inAfrica,asinotherregions,mostmigrationisintra-regional.

Figuresonpopulationmovementarenotoriouslyunreliable.

However,bestestimatessuggestthattherearenowsome22

millionpeopleborninAfricalivingoutsidetheircountryof

originandthataroundtwo-thirdsoftheseliveinotherAfrican

countries.Therearesome3millionNigerianslivinginother

countriesintheregion–atleasttwicethenumberestimatedtobe

livingintheUSandEurope(OrozcoandMillis,2007).Thereare

alsofarmoreSenegalesemigrantslivinginGambiathaninFrance

(Orozcoetal.,2010).

Regionalmigrationpatternsareshapedbywell-established

seasonalworkpatterns,cross-countrylabourmarketsandethnic,

kinshipandothersocialnetworks.TheBurkinaFaso–Côte

d’Ivoirecorridor(Côted’Ivoire’scocoasectorreliesonlabour

transfersfromBurkinaFaso)isoneofthetop20migration

corridorsintheworld,usedbyabout1.3millionmigrants.In

southernAfrica,workersfromMozambiqueandZimbabwe

providealabourforceforagricultureandmininginSouthAfrica.

OtherimportantcorridorsarethoselinkingSouthAfricato

Zimbabwe,MozambiqueandLesotho;MalitoCôted’Ivoire;and

DemocraticRepublicofCongotoRwanda(WorldBank,2011a;

PlazaandRapha,2011).

Behindtheheadlineestimatesofmigrationnumbersarea

vastarrayofdistinctivemigrationpatterns.Migrantremittance

transfersfromOECDcountriestoAfricaoriginatefromworkers

whohaverelocatedonapermanentortemporarybasis,from

refugeesandfrom‘irregular’migration.Onceagain,thedataare

limited.Butthepastdecadehasseenthedevelopmentofalready

establishedmigrationcorridorsfromtheHornofAfrica,North

AfricaandWestAfricaintosouthernEurope.Themigrants

usingthesecorridorsareacutelyvulnerableandtakehighrisks

torelocate,reflectingtheperceivedreturnstomigrationandthe

distressthatforcesthemtouproot(Box1).

2 Forausefuldescriptionoftheglobalremittancesystemseecfpb(2011).

12 ODI Report

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 13

Box 1: Distress movements and irregular migration

InFebruary2014,internationalmediareportscarriedanotherepisodeinanall-toofamiliarstory.TheItaliannavyrescuedover1,000Africansfromalmostcertaindeathatsea,some220kilometressouth-eastoftheislandofLampedusa–thesiteofover300deathsinOctober2013(BBCNEWSEurope,2014).

Beyondtheimmediatehumantragedies,sucheventsunderlinethepoweroftheeconomicforcesthatdrivemigration.Everyyear,tensofthousandsofAfricanstrytomakethejourneytoEuropeasirregularmigrants.Usinguptheirsavingsandriskingsmugglers,hazardouscrossings,captureandsummaryreturn,theyaremotivatedbythepursuitofabetterlifeforthemselves–andanopportunitytosupporttheirfamilies.

LegislationgoverningmigrationintheEUdrawsadistinctionbetweenformallabourmovement,theprovisionofsanctuaryforrefugees,andthe‘irregular’flowofmigrantsoutsidetheformalrules(Betts,2008).However,migrationpoliciesarebeingovertakenbythewiderforcesthatdrivepeopletomove,includingconflict,statefailure,povertyand,increasingly,ecologicalpressuresonlandandwaterresources–pressuresthatwillintensifywithclimatechange.Therearefourprimarydriversofforcedmigration

• Violence, armed conflict and human rights abuse:accordingtoUNHCR(UNHCR,2013),therearesome2.8millionrefugees

inSSA–overone-quarteroftheworldtotal-andanother5.4millioninternallydisplacedpeople(UNHCR,2014).Violent

conflicthasbeenapowerfulcatalystformigrationinsuchcountriesasSomaliaandtheDemocraticRepublicofCongo.

• High levels of poverty and acute vulnerability:SSAhasthehighestanddeepestlevelsofpovertyintheworld.Justunderhalf

oftheregion’spopulation–483millionpeople–liveonlessthan$1.25aday.Theaveragedistanceofthepoorfromthe

$1.25line,asmeasuredbythepovertygap,isthreetimesthelevelseeninSouthAsia.

• Interlocking political and economic failures:politicalinstabilityinZimbabweandCôted’Ivoireledtomarkedeconomic

reversals,withanassociatedlossoflivelihoodsandincreaseinpoverty.MassmigrationfromEritreaislinkedtounderlying

failuresinpoliticalandeconomicgovernance.

• Climate-related stress:Africa’spoorareacutelyvulnerabletoclimate-relatedshocks,suchasdrought,floodingandrainfall

variability.The2011droughtintheHornofAfricacontributedtoforcedmigrationonalarge-scale.

Atthemacroeconomiclevel,remittancesarejustlikeanyother

financialtransfer.Theyrepresentasourceofforeign-exchange

earningsthatcanbeusedtofinanceconsumptionorinvestment.

However,remittancesdifferfromotherflowsintwokeyrespects.

First,theyarelessvolatilethanforeigndirectinvestment(FDI)

andotherprivatecapitalflows.Second,unlikeaidandFDI,

remittancesgodirectlytorecipienthouseholds,augmentingthe

resourcesattheirdisposalandgeneratingstrongmultipliereffects

acrosslocalmarkets.

EvidencefromAfricareinforcesawiderbodyofresearchonthe

roleofremittancesinsupportingsocialandeconomicdevelopment.

Themostcomprehensiveoverviewoftheevidenceavailablehas

beenprovidedbyDilipRathaandothersattheWorldBank(see,

forinstance,Rathaetal.,2011,andRatha,2013).Inthissection

wedrawonthatoverviewandawiderbodyofresearch.

Macroeconomic benefitsRemittancesofferarangeofbenefits,fromanationaleconomic

perspective.Empiricalevidenceontheroleofremittancesin

supportingeconomicgrowthismixed,partlybecauseofthe

complexitiesassociatedwithdisentanglinglabourmarketeffects

frominvestmenteffects(Pradhanetal.,2008).Whatisclear

inthecaseofAfrica,however,isthatremittanceflowshave

cushionedtheimpactofexternaleconomicshocks,suchasthe

slowdownthatfollowedthe2008globalfinancialcrisis(African

developmentBankGroup(AfDB,2009).Remittanceshave

enabledgovernmentstoincreaseforeign-exchangereserves,cover

current-accountdeficitsandfinancedebtservicing.

Counter-cyclicalfinancingeffectsareparticularlyimportantfor

Africa.Morethananyotherregion,SSAisextremelyvulnerable

toexogenousshocks.Variationsinrainfall,droughtsandfloods

haveamarkedbearingontheeconomiccycle.Widerglobal

economicconditions,suchasthe2008spikeinfoodprices

andtheeconomicdownturnthatfollowedthefinancialcrisis,

alsoimpactheavilyonAfricangrowth.Oneofthebenefitsof

remittancetransfersisthattheyoftenincreaseinresponseto

economicshocks.

RecentIMFresearchonremittancepatternsfromItaly

documentsastrongcounter-cyclicaleffect:remittancesincreased

duringdownturnsinthebusinesscycleoftherecipientcountry

(Bettinetal.,2014).Thesameeffectisobservedduringperiods

ofhumanitarianemergency:remittanceflowstendtoriseas

economiescontract(andusuallylongbeforehumanitarianaid

arrives).Whileremittanceflowsfallduringeconomicdownturns

inthesendingcountry,theeffectistypicallylesspronouncedthan

thatforotherflows.Remittancetransfersfellatlessthanonefifth

oftherateofprivatecapitalflowsduring2009,forexample.3

Whatofthewiderrelationshipbetweenremittancesand

economicgrowth?Theevidencepointsindifferentandsometimes

contradictorydirections.Remittancesincreasetherealdisposable

incomeofhouseholds,therebyraisingaggregatedemand.

Theyalsocontributetofinancialdeepening.However,some

commentatorsarguethatoutwardmigrationsimultaneously

reduceslaboursupply,putsupwardpressureonwages(through

remittanceeffects)andreducesincentivetoworkthrougha

so-called‘reservationwage’effect(UNCTAD,2012).While

theempiricalevidenceisinconclusive,itdoesnotpointwith

anyconsistencytoanegativerelationshipbetweengrowthand

remittances.

Benefits for householdsBeyondthemacroeconomiceffects,remittancesgeneratevery

largesocialandeconomicbenefitsforrecipienthouseholds(Baird

etal.,2011).Therelationshipbetweenpovertyandmigration

operatesintwodirections.Inonedirection,highlevelsofpoverty

oftenactasaspurtomigration.EvidencefromMaliandSenegal

suggeststhatdecisionstomigratearetakencollectively,rather

thanbyindividualstoreducehouseholdvulnerability(Azamand

Gubert,2006).Extendedfamiliesandvillagebodiessometimes

pooltheirresourcestopayforthemigrationexpensesoftheir

mostskilledyoungmentosecureremittancetransfersthat

supportinvestment,andthatprotectconsumptionduringshocks.

Intheotherdirectionthereisapullfactor:remittancesconfer

opportunitiestoescapefrompoverty,improveopportunitiesfor

healthandeducationandboostproductivity.

Severalstudieshavelookedattheimpactofremittanceson

poverty.4Whilesomewhatpartialandfragmentary,evidencefor

Africapointstosignificantpovertyreductioneffects(Adams

andPage,2005).Onestudydocumentsadeclineof11%inthe

povertyheadcountforUgandathatislinkedtoremittances

(Ratha,2007).IMFresearchalsodocumentsapositiveassociation

betweentheshareofremittancesinGDPandreducedpoverty

(Guptaetal.,2007b).SurveyevidencefromGhanaindicatesthat

remittancesarecounter-cyclicaland,overtime,helptosmooth

2. Migrant remittances – wide-ranging benefits

3 Globalprivateflowstodevelopingcountriesdeclinedby27%in2009(WorldBank,2011b)whileremittancesdeclinedbylessthan5%(UNChronicle,2013).

4 SeeMohapatraandRatha(2011)foradetailedreviewoftheevidence;seealsoAgunias(2006).

14 ODI Report

householdconsumptionandwelfare,especiallyforfoodcrop

farmers.Controllingforothervariables,receivinginternational

remittanceshalvedthelikelihoodofahouseholdbeingpoor,and

increasedhouseholdspendingonhealthandeducation(Adams

andCuecuecha,2013).

RemittancestoAfricaareusedtosupportawide-rangeof

activities.Studiesfromacross-sectionofcountriesprovide

awindowontheseactivities.Figure 2comparesthetopten

prioritiescitedinrespondentsurveysforKenyaandNigeria.In

bothcountries,education,foodand(inNigeria)businessfigure

prominently.WhiletheevidencefromAfricaispatchy,research

fromotherregionssuggeststhatremittancescancontributeto

improvedschoolattendanceandmoreyearsofschooling.5

Justasremittancescanbuffernationaleconomiesagainst

externalshocks,sotheycanreducethevulnerabilityofpoor

households.Remittancetransferscanprovidehouseholds

affectedbydrought,floodsanddamagingeventswithalifeline.

Forexample,Ethiopianhouseholdsthatreceiveremittancesare

lesslikelytosellproductiveassetstocopewithfoodshortages.

EvidencefromGhana,MaliandSenegaldocumentshouseholds

usingremittanceincometosmoothconsumptionduringdistress

episodesgeneratedbyeconomicshocks.Thissafetynetfunction

enablesrecipienthouseholdstomitigateimpactsonnutritionand

avoidthedistresssaleofassets.Recentresearchusingpanel-based

evidencefrom42countriesinSSAhasaddedtotheempirical

evidenceonconsumption-smoothingeffects(ArezkiandBrückner,

2011).Usingvariationsinrainfalltoexaminetheimpacton

remittances,researchersfoundthattheassociatedincomeshocks

hadsignificantpositiveeffectsonremittances.

EvidencefromSomaliaprovidesapowerfulillustrationofthe

socialinsuranceandsafetynetfunctionsofremittances.During

2011,humanitarianaidagenciesrespondedfartooslowlytoa

faminethateventuallyclaimedsome260,000lives–halfofthem

childrenbelowtheageoffive.Bycontrast,theSomalidiaspora

increasedremittancetransfersatspeed,keepingmanypeople

alive,reducinglevelsofmalnutrition,andprovidingafoundation

foreconomicrecovery.

Themostauthoritativerecentestimatesputthevalueof

remittancestoSomaliaataround$1.2billionannually(FAO,

2013).Thatfigureismorethandoublethecountry’sreported

exportearningsand57%greaterthanaverageannualaid

(for2008-2011).Some41%ofhouseholdsreportreceiving

remittances,withtypicalvaluesrangingfrom$1,000to$6,000.

Thetop-rankedusesofremittanceswere(inorderofimportance)

foodpurchases,non-foodexpenses(includinghouserent),school

feesandmedicalexpenses.Three-quartersofallrespondents

studiedarereportedtousethemoneytheyreceivethrough

remittancestopayforfoodexpenses.Inaddition,some80%of

allnewbusinessventuresinSomaliaarefundedbyremittances

(PRNewswire,2013).

The counter caseVariouscounter-argumentshavebeenputforwardtocontest

thebenefitsofremittances.Ithasbeenclaimedthatincreased

remittancetransferscanharmeconomicgrowthandleadtoa

deteriorationofinstitutionalquality.6Inprinciple,largeinflowsof

remittancescancausetherealexchangeratetorise(theso-called

‘DutchDisease’effect),whichcanimpairgrowth–butthereis

littleevidenceofsucheffectsinAfrica(RajanandSubramanian,

2005;Guptaetal.,2007).Totheextentthatremittancesraise

productivitythroughinvestmentandfinancialdeepening,they

providetheirownantidotetoexchange-rateappreciation.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 15

5 See,forinstance,Borraz(2005);CoxEdwardsandUreta(2003);Lopez-Cordova(2005);ParinduriandThangavelu(2011);Yang(2004).

6 OnDutchDiseaseeffectsseeAcostaetal.,2009.

Figure 2: Reported use of international remittances: Kenya and Nigeria (% of total remittances received)

0

5

10

15

20

25

1

6 57

1113

4

108

1 00

4 5 5 6

10

22 22

25

Marriage/funeral

Rent(house/land)

Houserebuilding

Health New-houseconstruction

Food Business Education Landpurchase

Investment

Kenya

Nigeria

Source: Mohapatra and Ratha (2011: 20). Data are from Mohapatra and Ratha (2011) calculations and are based on household surveys

conducted in Kenya and Nigeria in 2009 as part of the Africa Migration Project.

Theevidenceoninstitutionalqualityis,atbest,inconclusive.

Onerecentpaperuseseconometricanalysistoexaminethe

relationshipbetweenremittancetransfersandgovernance

indicators,andobservesaconsistentlynegativecausalassociation

(Abdihetal.,2010).Theauthorstracetheerosionofinstitutional

qualitytoaccountabilityrelationships.Byactingasabuffer

betweenagovernmentanditscitizens,sotheargumentruns,

remittancesenablehouseholdstopurchasepublicgoodsrather

thanrelyongovernmentprovision,whichreducesthehousehold’s

incentivetoholdthegovernmentaccountable.Agovernment

can‘freeride’onthisincreaseinconsumptionandappropriate

moreresourcesforitsownpurposes,ratherthanfinancethe

provisionofpublicservices.Amongthemanydifficultieswith

thisargument,theauthorsappeartoassumethatthereisa

directsubstitutioneffectforpublicgoods(withhouseholds

reducingdemandforgovernmentprovisionasremittanceincome

rises),andthatincreasedprivatewelfarereducesdemandfor

governmentservices.Theirpaperalsofailstorecognisethe

needforcautionintracingcausalrelationshipsthroughhighly

imperfectdatasets.

Anotherclaimisthatremittancesareassociatedwith‘moral

hazard’inrecipientcommunities(AzamandGubert,2005).

Remittancereceivers,sotheargumentruns,willbeableto

maintainconsumptionwhileworkingless.Thereisnoempirical

evidencetosupportthisperspective,whichisbasedonsome

questionabletheoreticalpropositions.7Morecredibleisevidence

that,insomecontexts,malemigrationisassociatedwithan

increasedlabourburdenonfemalehouseholdmembers.Under

someconditions,remittancesmayalsoincreasedemandforchild

labourasreceivinghouseholdswithlabourshortagesseekto

undertakenewinvestmentactivities.Moreover,theincreasing

numberofskilledfemalemigrantsenteringtheUSfromLatin

America,forexample,hasbeenidentifiedasamajorconcern

becauseofthepsychologicaleffectsonchildrenandmigrant

mothers(Suarez-Orozcoetal.,2002;Orozco,2012).

Noneofthisevidencedetractssubstantivelyfromthelarge

actualandpotentialbenefitsassociatedwithremittances.

GovernmentsneedtoguardagainsttherisksofDutchDisease

andanerosionofinstitutionalgovernances,buttheseriskscan

becontainedthroughmacroeconomicpolicies,transparencyand

accountability.Similarly,whileremittancesmaygeneratesome

perverseeffectsinlabourmarkets,thesetoocanbecountered

throughpublicpolicy.

7 Theunderlyingassumptionappearstobethatremittancereceiverstargetaspecifiedlevelofconsumption,ratherthanoptimisingtheirownwelfare.

16 ODI Report

ThehighchargesassociatedwithremittancetransfertoAfrica

havelongbeenrecognisedasaconstraintondevelopment.Yet

internationaleffortstoreducethosechargeshaveachievedlimited

results–infact,recentevidencesuggeststhatremittancecharges

mayberising(WorldBank,2013a).

BoththeG8andtheG20havepledgedtostrengthenthe

developmentbenefitsoftheremittancesystem.TheL’Aquila

summitoftheG8in2008adoptedsomeclearprinciplesbacked

byaquantitativegoal.Politicalleaderspromisedtofacilitate

‘amoreefficienttransfer(…)enhancecooperationbetween

nationalandinternationalorganizationsand(…)makefinancial

servicesmoreaccessibletomigrants.’Thecommuniqueincluded

acommitmenttoworktowardsahalvingoftheaverageglobal

costofremittancetransfers,from10%to5%overfiveyears

–theso-called‘5X5’objective.Inthefinaldeclarationofthe

CannesSummitinNovember2011,theG20headsofstatealso

committedtoworktowardsthereductionoftheaveragecostof

transferringremittancesto5%by2014.

The‘5X5’commitmenthasbeenwidelyrestatedandtakenup

inanumberofforums,tonodiscernibleeffectontheremittance

chargesincurredbyAfricanmigrants.Atonelevel,thepersistence

ofhighchargesinremittancemarketsissomethingofanenigma.

Newbusinessmodelsandnewtechnologiesaretransforming

financialservicesacrosstheworld.Theextensionofmobilephone

ownershipandriseofmobilebankingisreducingdependence

onfixedlocationaccesspointsandmobiletransfershavebeen

associatedwithincreasedfinancialinclusionandreducedcosts.

OneofthemoststrikingexamplescomesfromAfrica.The

M-PESAnetworkinKenyaisnowoneoftheworld’slargest

mobilemoneyoperators.Launchedin2007bySafaricom,the

country’slargestmobile-networkoperator,M-PESAisnow

usedbyover17millionKenyans–sometwo-thirdsoftheadult

population.

Yetdespitethepervasivecoverageofsuchmobilenetworks

acrossAfrica,technologicalinnovationhasyettodrivedown

costsinremittancemarkets.Thebarrierstocost-reductioninclude

anoligopolisticinternationalmarketreinforcedbyfinancial

regulationinfavourofasmallnumberofbanks.

The global remittance marketTheprofileofremittanceintermediariesvariesacrosscountries

andregions.Mosttransfersoccurthroughmoneytransfer

operators(MTOs).Bankshaveshownlittleinterestinentering

themarketforremittances,partlybecausethesumsinvolvedin

individualtransactions–typicallybetween$150and$300–have

beenviewedastoosmallfortheinter-banksystem.

MTOstypicallylinkremittancesenderstoreceiversinAfrica

throughanagent.Theportfoliooftransferoptionsrangefrom

‘cash-to-cash’to‘debt/credit-card-tocash’and‘account-to-cash’,

withconsumerpreferencesdictatedbycost,convenienceand

information.

WhenAfrica’smigrantssendremittanceshome,theyenter

marketscharacterisedbyaconcentrationofmarketpower.The

‘bigfour’MTOsareWesternUnion,MoneyGram,RiaFinancial

servicesandSigue.WesternUnionaloneaccountsforanestimated

one-fifthofinternationalremittancetransfers–some$80billion

in2011.MoneyGram,thesecondlargestcompany,transfers

around$20billionannually.InthecaseofAfrica,thetwo

companiesexercisewhatamountstoaduopolyinmostcountries

(seebelow).

Remittancetradegenerateslargerevenues.In2012,Western

Unionreportedanoperatingincomemarginof28%on$3.5

billionintransactionfeesand$988millioninforeignexchange

revenues(WesternUnion,2012).MoneyGramreportedmargins

of20%onrevenuesof$1.4billion(MoneyGram,2014).Both

companieshaveregisteredstronggrowthinrevenues,reflectinga

widerincreaseincross-borderremittances.TheMiddleEastand

AfricahavebeenWesternUnion’sfastestgrowingmarket,with

7%growthin2012.Revenuesonforeignexchangetransaction

havegrownataprolificrate,withWesternUnionachieving16%

growthin2012(WesternUnion,2012).

Giventheverylargemarginsonoffer,whyareotherfirms

notenteringthemarketatscale?Thereareanumberofbarriers

toentry.Oneofthebiggestispresenceontheground.Western

Unionhas510,000agentsglobally(WesternUnion,2012),many

ofthemoperatinginareasbeyondthereachofbanksandformal

financialinstitutions.MoneyGramhas336,000agentsworldwide

(MoneyGram,2014).Marketshareiscloselyrelatedtothe

numberofagents–andWesternunionhasexpandeditsnetwork

byafactoroffiveinthepastfewyears(TheEconomist,2012).

ExclusivityarrangementsbetweenMTOsandcommercialbanks

representanotherbarriertoentry(seebelow).

From global to regional – remittance markets in AfricaRemittancemarketsinAfricaaredominatedbyaduopolyofWestern

UnionandMoneyGram.Usingpay-outlocationsasaproxyfor

marketshare,thereare22countriesinwhich eitherWesternUnion

orMoneyGramaccountformorethanhalfofthetotal(Figure 3).

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 17

3. The high cost of remittances to Africa

8 ThisfigureincludesNorthAfrica.

Inanother11countries,thetwotogetherrepresentoverhalfof

locations.WesternUnionhassome30,000agentsintheregion.8

Itisbeyondthescopeofthispapertoprovideadetailed

accountofremittance-marketstructures.Remittanceservice

agencies provideservicestoclientsandchargefeeseitherdirectlyorthroughagents.Recipientsreceivetransfersinstores,banks,

postofficesor,insomecases,micro-financeinstitutions(MFIs).

Theroleofthemainactorscanbebrieflysummarised.

Commercial banks.InseveralAfricancountries,banksarethe

onlyagencyauthorisedtoconductmoney-transferoperations,and

typicallypartnerwithlargeMTOs.Incountrieswhereonlybanks

areauthorisedtopayremittances,halfareagentsofWestern

UnionandMoneyGram,thelargestMTOsinAfrica.According

toonemarketsurvey,banksinpartnershipswithWesternUnion

serviceabout41%ofpaymentsand65%ofallpay-outlocations

(IFAD,2009).Thereare29countriesinAfricawherebanks

accountforoverhalfofthein-boundremittancepayments.In

Ethiopia,NigerandNigeriatheshareexceeds80%,risingto

100%forSouthAfrica,Mozambique,andLesotho.

Money transfer operators (MTOs). These offerbothcash-to-cashtransfersaswellaselectronicmoneytransferservices.

MTOsoperatethroughnetworksofagentsandpartnershipswith

correspondentbanksinrecipientcountries.

Non-bank financial institutions.Thisumbrellacategory

includescreditunions,cooperativesandMFIs.Underthe

regulationsoperatinginmostAfricancountries,theseinstitutions

canonlyserveaspaymentagentsforMTOs.Fewareauthorised

topayremittancesdirectly.WhilefarmoreAfricanshaveaccounts

withMFIsthanwithformalfinancialinstitutions,theformer

accountforonly3%ofremittancepay-outlocations(McKay

andPickens,2010).Onlyasmallnumberofcountries–including

KenyaandGhana–authorizemicro-financeinstitutionstocarry

outinternationalmoneytransfers(WorldBankandEuropean

Commission,2013).

Post offices. Whilecommercialbanksareinaccessibletothe

poorestinmanycountries,postofficeshavefarhigherlevelsof

coverage.Onesurveyestimatesthatmorethan80%ofpostoffices

inSSAarelocatedoutsidethethreelargestcitiesintheregion

(ClotteauandAnsón,2011).Thisprovidespostalnetworksa

uniqueopportunitytobecomealinkintheremittancetransfer

chain.However,intotal,onlyabout20%ofallpostofficesinAfrica

areauthorisedtopayremittances(ClotteauandAnsón,2011).

DataprovidedbytheWorldBankhavemadeitpossibleto

constructamoredetailedpictureofremittancetransfercosts.In

Africa,asinotherregions,banktransfersareassociatedwiththe

highestcharges,withpost-officeandonlinetransfersincurring

thelowestcharges.Betweentheseoptionsareanarrayofcharges

(seeFigures 4 and 5).InaWorldBanksamplesurveyforthelast

quarterof2013,bankchargesaveraged19%–morethantwice

theaveragelevelforMTOs.Postofficesrepresentedthelowest

costoption.However,thisoptionisassociatedwithlimitedreach

becauseoftheregulatoryenvironment.

18 ODI Report

Figure 3: Concentration of market power: % of pay-out locations by company, Western Union and MoneyGram

0

80

70

50

40

30

20

60

100

90

10

Western Union

MoneyGram

Others

Cape

Ver

de

Gabo

n

CAR

Mad

agas

car

Sao

Tom

e e

Prin

cipe

Zam

bia

Libe

ria

Zim

babw

e

Ango

la

Mal

i

Buru

ndi

Gam

bia

Guin

ea

Rwan

da

Chad

Ugan

da

Nige

ria

Mal

awi

Equa

toria

l Gui

nea

Guin

ea‐B

issa

u

Burk

ina

Faso

Nige

r

Djib

outi

Com

oros

Cong

o

Beni

n

Sier

ra L

eone

Bots

wan

a

Cam

eroo

n

Ghan

a

Togo

Moz

ambi

que

Tanz

ania

Cote

d'Iv

oire

Cong

o, D

em. R

ep.

Sene

gal

Ethi

opia

Keny

a

Suda

n

Swaz

iland

Nam

ibia

Eritr

ea

Leso

tho

Som

alia

Note: Shaded area represents countries in which market share is ≥50%.

Source: IFAD Sending Money Home to Africa, 2009.

Africa’s remittance super-taxChargesonremittancestoAfricaarewellabovethelevels

reportedforotherregions–andtheyhaveincreasedsince2010

(Figure 6).Onaverage,anAfricanmigrantsending$200home

willpayaround$25,or12.3%.Thiscompareswithaglobal

average(withoutSSA)of7.8%.Typically,Africa’sdiasporapays

twiceasmuchasitsSouthAsiancounterpartwhensending

moneyhome.

Beneaththeheadlinefigurestherearemarkedvariationsacross

agencies.Chargesarehighestforbanksandlowestforpost-offices.

Acrossthespectrumofservicedeliverymechanisms,chargesfor

Africaarefarhigherthantheglobalaverage(Figure 7).Africa’sdisadvantageinchargingcanbethoughtofasa

‘remittancesupertax’.Whilenotataxinaliteralsense,the

charginggapbetweenAfricaandtherestoftheworldcanbe

thoughtofasalevy.Thedistinctivefeatureofthislevyisthatit

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 19

Figure 4: Average % cost of transferring $200 by type of remittance service provider

Post of�ce

Money transferoperator/post of�ce

Money transferoperator

Bank/money transfer operator

Bank

Average % cost of transferring $200

0 2 4 6 8 10 12 14 16 18 20

Source: World Bank Send Money Africa, January 2014.

Figure 5: Average % cost of sending $200 by product type

Prepaid card

Online

Mobile

Cash to cash

Multiple

Bank account

Account to cash

Average % cost of transferring $200

0 2 4 6 8 10 12 14 16 18 20

Source: World Bank Send Money Africa, January 2014.

Figure 6: Average % cost of transferring $200 by region

4

5

6

7

8

9

10

11

12

13

14

1Q2009

3Q2009

1Q2010

3Q2010

1Q2011

3Q2011

1Q2012

3Q2012

1Q2013

2Q2013

3Q2013

4Q2013

Africa’s remittance ‘Super tax’

Loss = $ 1.4 billion

Global average excluding SSA

Loss = $ 0.9 million

5x5 initiative

2008

EAPLAC

MENASA

SSAGlobal

Source: Remittance Prices Worldwide database of the World Bank.

divertsrevenuesawayfromhouseholdsandtowardsMTOsand

otherintermediariesthatlinkremittancesendersandreceivers.

Weestimatethe‘supertax’transferbyreferencetotwo

benchmarks.Thefirst,alower-boundestimate,isthegapbetween

chargesforAfricaandglobalaveragecharges.Insettingthe

secondbenchmark,wefollowamethodusedbytheWorldBank

andothersthatestimatesthegainthatwouldaccrueifcharges

wereloweredtothe5%internationaltargetlevel.

Ourestimateforthe‘remittancesupertax’transfer(setouton

theright-handsideofFigure4)is$1.4-2.3billion.Thisimpliesa

mid-rangelossestimateof$1.8billion.

Partofthederivedlossthatweidentifyoccursthroughthe

operationsofMTOsandotherintermediaries.Itisnotpossible

toestimatewithanyprecisionhowthelossisdistributedacross

theremittanceintermediaries.Thisisbecausethereisinsufficient

informationonchargestructuresfordifferentformsoftransfer,

thevolumeofeachtypeoftransfer,andthecostsassociatedwith

financialregulationsandbanksinAfrica.

However,anadjustedformofourbenchmarkingdoesprovide

aplausiblepictureofhowthe$1.8billionlossisdistributed.

Marketshareprovidesoneproxyindicator(Figures 8and9).MTOsaccountforjustunder90%ofremittances,withWestern

Union(40%)andMoneyGram(24%)accountingfortwo-thirds

ofthetotal.Anothercompanyspecificproxyindicatoristhe

chargereportedforWesternUnionandMoneyGramontheWorld

Banks’s‘RemittancePricesWorldwide’website.Thischargecanbe

comparedwiththeglobalaveragetoderivean‘Africaloss’effect.

Takingthe$1.8billiongloballossfigureasareferencepointand

usingasimpleextrapolationfrommarketshare,MTOswould

accountforaround$1.6billion.

Table 2summarisestheresultsofourderivedlossapproach

appliedtothetwolargestMTOs(seethetechnicalannexfor

details).Theestimatedrangesarefairlylarge–$365–807million,

reflectingthevarianceinbenchmarks.Thelowerendoftherange

(basedonreportedcharges)wouldappeartobeimplausible,given

20 ODI Report

Figure 7: Africa’s disadvantage: % cost of transferring $200

0

18

11

5

9

5

3

2

4

6

8

10

12

14

18

16

Bank MTO Post of�ce

Remittances to SSA countries

Remittances to non-SSA countries

Source: Remittance Prices Worldwide database of the World Bank,

2013.

Figure 8: % of pay-out locations* by type of provider

Post of�ce

7.6

2.40.6

89.4

Bank

Others

MTO

Notes: * We here use the % of remittance pay-out locations as a

proxy for ‘market share’, and throughout.

Source: IFAD Sending Money Home to Africa, 2009.

Figure 9: % of MTO pay-out locations by company

Moneytrans

5.5

7.7

9.0

13.7

24.2

40.3

Banque Postale

Coinstar

Others

MoneyGram

Western Union

Source: IFAD Sending Money Home to Africa, 2009.

WesternUnion’sandMoneyGram’smarketshare(fromwhichwe

derivetheupper-boundestimate).Themid-rangefigureforthe

lossfromtransfersthroughthetwocompanies,theiragentsand

associatedbanksis$586million.Itisimportanttorecallthatany

figurederivedfromreported remittancesislikelytoconstitute

anunder-statement,becauseoftheunder-reportingofremittance

transfers(WorldBank,2013a).

Whateveritsdistribution,the‘remittancesupertax’is

effectivelyalevyondevelopmentandself-reliance.Ithurts

remittancesendersandreceivers,aswellasnationaleconomies,

intworespects.Firstandforemost,itdiminishestheresources

availableforhouseholdspendinginareassuchaseducation,

health,foodsecurityandproductiveinvestment.Second,other

thingsbeingequal,ahigherchargeislikelytoreducethesizeof

remittancetransfers,whichhasbothhouseholdandwidermacro-

economiceffects.

Howsignificantareourlossestimatesintermsofwider

externalfinancialflows?Comparisonswithaidareinstructive.

Themid-rangelossestimateof$1.8billionannuallyisequivalent

tojustoverhalfoftheaidtoAfricaprovidedbytheUK,the

region’sthirdlargestbilateraldonor.Itrepresents40%of

transferstoAfricathroughtheWorldBank’sInternational

DevelopmentAssociation(IDA)–thelargestsourceofmultilateral

aid.Withaidbudgetsunderpressure,reducedremittancecharges

couldunlockincreaseddevelopmentfinance.

Viewedthroughadifferentprism,$1.8billionwouldbe

sufficient,atcurrentlevelsofper-pupilspending,toputalmost

14millionofAfrica’schildrenintoschool.Toplacethatfigure

incontext,itrepresentsaroundhalfoftheout-of-schooltotalin

SSA.9Alternatively,thesavingsthatwouldresultfromcuttingthe

‘supertax’wouldbesufficienttoprovideimprovedsanitation

to8millionpeople,orcleanwaterto21millionpeople.10While

thesefiguresareonlyindicativeofpossibleinvestmentoutcomes,

theyillustratethescaleoftheopportunitycostassociatedwiththe

highchargesonAfrica’sremittances.

Variations across OECD countriesOneofthemoststrikingfeaturesofremittancechargesforAfricais

theirvariabilityacrossOECDcountries(Figure 10).Averagecostsinthetwolargestremittancemarkets–FranceandtheUK–are

around10%.LevelsinGermanyareconsiderablyhigher.Itisnot

obviouswhychargesshouldvarytothisdegree.Giventhatmostof

thecompaniesinvolvedareglobalandthatremittanceoperations

arerelativelysimple,someuniformityinchargingmighthave

beenanticipated.Lookingbeneaththeseheadlinefiguresrevealsa

numberdistinctivechargingsystems,withlowlevelsofvariation

onbasicfeesandhighlevelsofvariationonforeigncurrency

conversioncharges(Box2).

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 21

9 Therewerejustunder30millionprimaryschool-agechildrenreportedasbeingoutofschoolinSSAin2013.Averageannualper-pupilspendinginsub-SaharanAfricais$131(UNESCO,2013/4).

10 FiguresforaccesstoimprovedwaterandsanitationarebasedonHuttonetal.(2007),andHuttonandBartram(2008).

Figure 10: Remittance charges from the G7 (excluding Japan): total average % cost of transferring $200

0

2

4

6

8

10

12

14

16

Canad

a

Franc

e

German

y UKIta

ly US

Total average (2013)

SSA average (4thQ2013)

Source: Remittance Prices Worldwide database of the World Bank.

Table 2: Estimating the share of Western Union and MoneyGram in Africa’s remittance ‘super tax’

Reported charge and market share estimate*

Market share estimate**

Western Union (WU) $185 million $504 million

MoneyGram (MG) $180 million $303 million

Total for WU and MG $365 million $807 million

Mid-range figure $586 million

Notes: * Based on respective % of remittance pay-out locations

(40.3% for WU and 24.2% for MG) and on their average charges on

remittances to SSA (9.4% for WU and 10.4% for MG). For details,

see Technical annex 3; ** Based on share of remittance pay-out loca-

tions. For instance, for Western Union: US$1.4bn X 0.894 X 0.403

Data source: World Bank ‘Remittance Prices Worldwide.’

Table 3: Current charges and implied losses through the remittance ‘super tax’ from the UK

Amount of remittance: $5 billion in 2012

Current charges 9.5% $475 million

Charges at global average (excluding SSA) 7.8% $390 million

Charges at 5% $250 million

Implied losses through ‘remittance super tax’ $85 – 225 million

Mean value $155 million

Estimated share of losses from WU and MG* $49 – 130 million

Of which

Western Union $31 – 81 million

MoneyGram $18 – 49 million

Note: *Based on the % of remittance pay-out locations (see Table 2 notes).

22 ODI Report

Box 2: Remittances from the United Kingdom

WithalargeAfricandiasporapopulation,theUKisamajorsourceofremittancetoAfrica.In2012,some$5billionwastransferred–around15%oftheglobaltotal.ItfollowsthatthetermsunderwhichAfricanmigrantstransfermoneyfromtheUKhavefar-reachingimplicationsfordevelopment.

WesternUnionandMoneyGramarethelargestsourcesofremittancetransferstoAfricafromtheUK.PartialdataavailablefromtheWorldBankpointtoamarkedvariationinchargelevels–andinthechargeprofile.MoneyGramcharges15%onaverage(with4percentagepointsofthechargecomingthroughaforeigncurrencyconversionlevy).WesternUnion’saveragechargeis10%(with3percentagepointschargedonforeigncurrencyconversion).Onthebasisofthecommercialmarketinformationcurrentlyavailable,itisnotpossibletodeterminethereasonsforthechargingdifferentials.

Researchundertakenforthisreportlookedbehindtheaverageatthecountry-levelpatternofcharges.Wefocusedon‘on-linecredit’and‘debit-card-to-cash’transactions:amongthecheapestreportedremittanceavenues.Welookedatchargestructuresfor15countriesinsub-SaharanAfricaand4comparatorcountries(Figures 11 and 12).Indoingso,wefollowedtheconventionofcountingbothdirectchargesintheformoffeesandtheforeignexchangemargin,asdeterminedbythedifferencebetweentheexchangerateappliedbythemoneytransferoperatorandtheinter-bankexchangerate.Thetechnicaldetailsoftheexerciseareprovidedinthetechnicalannex.

Ourexerciseisobviouslylimitedinscope.Wedonottrackchangesovertime,norareweabletoaccesshistoricdataonforeignexchangespreads.Evenso,ourfindingsraiseanumberofquestionsthatmayhaveabearingonwideraspectsoftheglobalremittanceeconomy.

• There appears to be an ‘Africa rate’ for fees, independent of country characteristics.Theuniform-ratebasicchargeappliedbyWestern

Unionisaround8.3%.Giventhedifferencesincountryconditions,thereasonsfortheuniformfeearedifficulttoestablish:operating

conditionsinKenyaareclearlyverydifferenttothoseinSierraLeone,yetWesternUnionappliesauniformcharge.Inaddition,the

feestructureappearstobeindependentofthevolumeoftrade.ItisequivalentinNigeria($3.8billioninremittances)andRwanda

($4.2millioninremittances).MoneyGramappearstooperateatieredbandapproach.Formostcountriesthebandiswellabovethe

WesternUnionlevel,at14.6%.Inonlytwocases–GhanaandKenya–doesitmatchtheWesternUnionbasicfeecharge.

• There are large variations in foreign exchange charges. Foreigncurrencyconversionchargesrangefrom0.6to6percentage

pointsabovethefeeforWesternUnion,andtheycanreach8percentagepointsabovethefeeforMoneyGram.Therearemarked

differencesinforeignexchangefeesappliedbythetwocompanies.Onceagain,thefeestructureisnotobviouslyrelatedtoriskor

countryconditions.MigrantsfromTanzaniaandEthiopiafacelowercharges,respectively,thanmigrantsfromKenyaandBotswana

whenremittingfromWesternUnion.Ifunderlyingmarketconditionsdonotexplainthepricedifferentials,thevariationsmaybe

relatedtoinadequateconsumerinformationorcompanypolicyonthemarginstargetedforcurrencyconversion.

• There are marked disparities in fees between Western Union and MoneyGram.Thesedisparitiesapplyincountrieswhereone

companyhasanoverwhelmingmarketshare(WesternUnioninRwanda)andincountries–suchasUganda,Zambiaand

Zimbabwe–wherethereisamoreevenmarketsplit.Differentialchargesinonecountrymaybeexplainedbymarketsegmentation,

withonecompanydominatingeitherinageographicareaorinaspecificproductgroup.Thisisanareathatrequiresfurther

researchtounderstandtherelationshipbetweenchargestructuresandmarketconditions.Basedontheprofileofremittancesin2013,weestimatethattheUKisresponsiblefor$85millionto$225millionofthelosses

incurredbyAfricathroughthe‘remittancesupertax’.Usingtheproxymeasuresoutlinedforthewiderglobalestimate,between$49-130millionofthefiguremaybeassociatedwithtransfersinvolvingWesternUnionandMoneyGram(Table 3).

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 23

Figure 11: Western Union remittance charges to the UK: % cost of transferring £120 (or $200) for selected SSA countries

0

16

24

10

8

6

4

12

2

Zambia

Tanz

ania

Ethiop

ia

Sierra

Leon

eGha

na

Nigeria

Keny

a

Zimba

bwe

Liberi

a

Sene

gal

Botswan

a

Rwanda

Ugand

a

Malawi

Gambia Ind

iaBraz

il

Bangla

desh

Nepal

Fee (%)

FX margin (%)

Fee + FX margin (%) global average

0.6

8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 2.4 4.1 4.9 4.9

2.2 2.42.8 3.1 3.2 3.2 3.2 3.3 3.4 3.5 3.8

5.15.4

5.9

1.7

4.3

2.0

4.3

Note: Pay online with debit/credit card; delivery method: cash. The global average (excluding SSA) of fee and foreign exchange margin for the

online service offered by MTOs is 7.12%.

Source: WU website; data collected on 21 March, 2014.

Figure 12: MoneyGram remittance charges from the UK: % cost of transferring £120 (or $200) to selected SSA countries

0

25

20

15

10

5

Gambia

Zimba

bwe

Ghana

Keny

a

Zambia

Sierra

Leon

e

Tanz

ania

Liberi

a

Ethiop

ia

Botswan

a

Ugand

a

Rwanda

Sene

gal

Malawi

India

Bangla

desh

Nepal

Brazil

Fee (%)

FX margin (%)

Fee + FX margin (%) global average

8.0 3.23.1 3.2

0.71.6

2.9 3.0 3.4 3.5 3.7 3.85.3

7.8

1.6

1.7

4.0

6.8

2.5 7.4 8.3 8.3 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 2.5 5.0 2.514.6

Note: Pay online with debit/credit card; delivery method: cash. The global average (excluding SSA) of fee and foreign exchange margin for the

online service offered by MTOs is 7.12%.

Source: MoneyGram website; data collected on 21 March, 2014.

Africa’s high charge remittance corridorsItisnotjustoninternationalremittancesthatAfricanmigrants

faceexcessivecharges.Peoplecrossingborderswithintheregion

asseasonalworkersortradersfacechargesfarhigherthanthose

forOECD-Africacorridors.

Alloftheworld’stoptenremittance-chargingcorridorsareto

befoundinSSA,withSouthAfricaandTanzaniafiguringinall

butoneofthesecorridors.WorkersfromMalawi,Mozambique

andZimbabweemployedinSouthAfrica,andUgandans

remittingmoneyhomefromKenyafacechargeswellinexcess

of20%iftheyconductthetransferthroughbanks.MTOshave

lowerchargestructures,butthesearestillwellaboveOECD-

Africalevels.AsillustratedinTable 4: • therearetencountriesintheregionwithremittancecorridor

chargesforbanksinexcessof20%:migrantworkers

fromMalawiremittingthroughbanksinSouthAfricaand

UgandanssendingmoneyhomefromTanzaniapayone

quarteroftheremittanceincharges

• therearenineintra-AfricacorridorswithMTOfeesinexcessof15%,

risingto39%forNigeriansremittingmoneyhomefromGhana.

Theveryhighchargesleviedonremittancecorridorstoand

withinAfricareflectthecentralroleofbanks–themostcostly

transfervehicle.

Factors that contribute to higher pricesWhyareremittancechargesforAfricasohigh?Theopaque

natureofcommercialoperationsmakesitdifficulttoanswer

thatquestion.ThecoststructuresfacingMTOsinAfricaare

largelyunknown,andthereislittlesystematicevidenceonthe

relationshipbetweenforeign-currencyconversionoperations

andriskfactors,suchascurrencyvolatility.Similarly,noMTOs

publishthetermsofcommercialagreementswithAfricanbanks.

Whilethereisconsiderablevariationacrossremittance

corridors,severalinter-connectedfactorscombinetomaintain

Africa’shighchargestructure.Theseincludealackof

transparencyonthepartofRSPs,limitedcompetition,regulatory

practicesthatrestrictmarketentryand–critically–alackof

financialinclusioninAfricaitself.

Lack of transparency on foreign-exchange costsExchange-rateprovisionsillustratethetransparencyproblem.

Currencyconversionfeesareoneofthekeyfactorsinfluencing

overallcharges(seetheUKexampleinBox2).Itfollowsthat

transparentinformationaboutexchangeratescanhelpremittance

senderstomakeinformedchoicesandfacilitatecompetition

amongRSPs.

Theexchange-rate‘spread’,whichdeterminesthecharge,is

thepercentagedifferencebetweentheretailrateprovidedbyRSPs

andtheinter-bankrate.Forproviders,thespreadisasourceof

revenueandshareholdervaluethatissetinordertopricerisk,

maximiseprofitorattractconsumers(cfpb,2011).

ForAfricanssendingmoneyhome,‘spread’chargescan

representuptohalforevenmoreoftotalcosts.YetMTOsvary

inthedegreetowhichtheyprovidetransparentinformationin

anaccessibleform.Fewprovidecleardescriptionsoftheirpolicy

onspreadcharges,orontheshareofthetotalfeerepresented

bythesecharges.InavisittotheUKweb-siteofWesternUnion

toinvestigatecurrencycharges,wewereunabletofinddetailed

informationonthecurrencycomponentoftheremittancecharge.

Thecompanyalsoreservesahighdegreeofdiscretionwith

respecttocurrencyconversionmargins:‘WesternUnionapplies

acurrencyexchangerateifweconvertyourfundstoadifferent

currency.Anydifferencebetweentheexchangerateyou’regiven

andtheonewereceivewillbekeptbyWesternUnion(and,in

somecases,ouragents).’ManyoftheEuropeanbanksinvolved

inremittanceprovisionareunabletospecifytheexchangerate

forAfricancurrencies(WorldBankandEuropeanCommission,

2014).

24 ODI Report

Table 4: Cost of transferring $200, 3Q2013

Africa’s ten most expensive bank remittance corridors

Destination Source Total % cost

Angola South Africa 21

Zimbabwe South Africa 21

Zambia South Africa 21

Nigeria Ghana 22

Mozambique South Africa 23

Botswana South Africa 23

Kenya Tanzania 24

Rwanda Tanzania 24

Uganda Tanzania 24

Malawi South Africa 25

Africa’s ten most expensive MTO remittance corridors

Destination Source Total % cost

Rwanda Kenya 8

Lesotho South Africa 15

Swaziland South Africa 15

Zimbabwe South Africa 15

Botswana South Africa 16

Angola South Africa 16

Zambia South Africa 19

Mozambique South Africa 19

Malawi South Africa 27

Nigeria Ghana 39

Source: World Bank ‘Remittance Prices Worldwide Third Quarter

2013’ dataset.

ConsumergroupsintheUShavecampaignedforenhanced

disclosure.Forexample,theConsumerFinancialProtection

BureauhascalledforarulethatwouldrequireallMTOsto

providedetailedinformationonexchangeratefees(Cfpb,2014).

Inasimilarvein,ConsumerInternationalhascalledforregulatory

bodiestorequireMTOstoitemiseonlineandinretailoutletsall

applicablefees,costsandtaxesincludingtransferfee,theforeign

exchangerateappliedandreferencingtheapplicablespread

(ConsumersInternational,2012).

Oneexampleofquestionablepracticeonexchangeratefees

comesfromGhana.Whenthecountry’snationalcurrency,the

Cedi,wasdevaluedinJanuary,2013,RSPstransferringtothe

countryinitiallyreflectedthenewrateintheircharges.However,

overthecourseof2013theyallowedtheirconversionrateto

divergefromtheinter-bankrate,pushingthecostsofremittances

upfrom10%to16%(WorldBank,2013b).Thisoutcomeraises

concernsatanumberoflevels.Ifthedivergenceoccurredin

justonemajorprovider,therisecouldhavereflectedthelimited

availabilityofinformationforconsumers.However,ifthe

divergencewasappliedacrossseveraloperatorsitwouldpointto

thepossibilityofcollusivepricing.

Exclusivity agreementsExclusiveagreementsinvolvingthemajorMTOsontheoneside

andtheiragentsandcommercialbanksontheotherareanother

driverofhighchargesbecausetheyrestrictcompetition.Such

agreementsarecommoninAfrica.

Exclusivityagreementswithbanksallow,andinsomecases

require,MTOstoconducttransactionsthroughnominatedbanks

(Rathaetal.,2011;UNCTAD,2012;IFAD,2009).Onesurvey

inNigeria,carriedoutin2007,foundthat21ofthe25banks

operatinginthecountryhadexclusiveagreementswitheither

WesternUnionorMoneyGram.Actingasasoleinternational

remittancepartnerfor15banks,WesternUnionaccountedfor

overtwo-thirdsofmonthlybankremittancetransaction.In2008,

theNigerianCentralBankruledthat:‘exclusivityclausesaimed

atprotectingtheinterestoftheInternationalMoneyTransfer

Operators,constitutearestraintoncompetitionandunnecessarily

increasethecostofmoneytransferservicestotheusers’(Central

BankofNigeria,2008).Regulatoryauthoritiesinsomecountriesareactivelyreviewing

exclusivityagreements.BothGhanaandNigeriahavenowadopted

rulesprohibitingexclusivity,thoughmanysoleagreementscontinue.

Senegalhasalsoinstructedbankstoremoveexclusivityclauses.

Thesecasesillustrateawiderreformcurrentlyextendingbeyond

SSA.InJanuary2013,aspartofawiderfinancialliberalisation

programmetocombatthelegacyofcorruptionandinefficiency

inheritedfromthepreviousregime,centralbankauthoritiesin

Tunisiarevokedallbankexclusivityclauses.Banksinthecountry

arenowrequiredbylawtoofferservicesfrommorethanoneMTO.

ExclusivityagreementsarealsowidelyappliedbyMTOstotheir

agents.ItiscommonpracticeforWesternUnionandMoneyGram

torequiretheiragentstoworkforthemassoleremittance

providers.TheMTOsthemselvesciteanumberofgroundsin

defenceofsucharrangements.Theserangefromthepreventionof

‘freeriding’bycompetitorsseekingtoreapthebenefitsofinitial

investmentintrainingandthedevelopmentofoutletlocations,to

compliancewithregulatorymeasuresonmoneylaundering,fraud

andcriminalactivity.

Whilenotwithoutfoundation,theseargumentsdonotaddress

thecentralconcernsraisebyagentexclusivity.Withjusttwo

companiesaccountingfortwo-thirdsofagentoutletsinAfrica,

exclusivearrangementsseverelyrestrictcompetitioninwhatisa

highlyconcentratedmarket.

Here,too,severalcountriesarereviewinglegislation.Oneexample

comesfromtheGambia,whereWesternUnionandMoneyGram

togetherprovidearound96%ofmoneytransferservices.Following

acomplaintfromalocalagentcontractedtoMoneyGram,the

country’sCompetitionCommissionhasreviewedexclusivity

clausearrangements.Theseagreementsprohibitlocalagentsfrom

contractingwithotherprovidersforuptosixmonthsaftertheexpiry

ofacontract.ThefindingsoftheCommissionareinstructive.Its

investigationdeterminedthat‘theleadingprovidersofmoneytransfer

servicesareexploitingthemonopolysituation…thatisrestrictive

andanti-competitiveinnature.’TheCompetitionCommissionhas

directedexclusivityclausestoberemovedonthegroundsthatthey

‘constituteanabuseofthedominantpositionenjoyedbyWestern

UnionandMoneyGram’andabarriertothedevelopmentofa

competitiveremittanceservicesystemthatisresponsivetocustomer

needs(InvestigationReporttoCompetitionCommission,2011).

Financial regulation in AfricaAfrica’sbanksare,forthemostpart,pooratintermediation.

Thisisreflectedinhighinterest-ratespreads,alimitedgeographic

reachandportfoliosdominatedbyalucrativetradeintreasury

bills.Regulatorydirectivesoftendriveupcostsbyrequiringbanks

tofinancegovernmentdebtand,insomecases,loss-making

enterprises,onsubsidisedterms.Imposinghighcostsonthe

remittancetradehelpstofinanceinefficientbankingoperations

gearedtowardsthesubsidisationofgovernmentdebt.

FewofAfrica’sbanksofferdedicatedservicestoremittancesenders,

particularlythosewhoneedtosendsmallamountsfromoneAfrican

countrytoanother.Morebroadly,thepaymentsysteminfrastructureis

notequippedinmostcountriestohandlemoneytransfers.Smallvalue

transfersareconductedusingproductsandplatformsoftheSociety

forWorldwideInterbankFinancialTelecommunications(SWIFT),

whichprocesspaymentsthroughcorrespondentbanknetworks.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 25

11 Order13224(UnitedStatesDepartmentoftheTreasury,2001b)isdesignedtoblocktheassetsofindividualsorcompaniesprovidingsupporttoterroristorganisations;Order13536(UnitedStatesDepartmentoftheTreasury,2010)dealsspecificallywithSomalia.

12 ThefederalregulatorysystemcomesundertheremitoftheTreasuryDepartmentthroughtheOfficeoftheComptrolleroftheCurrency,theFinancialCrimesEnforcementNetwork(FinCEN),andtheOfficeofForeignAssetsControl(OFAC),agenciesthatensurecompliancewiththeBankSecrecyActandtheUSAPatriotAct.TheactivitiesoftheFinCENfocusonpreventingmoneylaunderingpractices,whiletheOFACisinvolvedinmonitoringtransfersfromcertainentitiesorcountries.

However,theexistinginternationalcorrespondentbankingnetworks

inseveralAfricancountriesarenotwelladaptedtoprocesslow-value

retailflows(MohapatraandRatha,2011).

Regulatoryauthoritiesinsomecountrieshaveallowedbanksto

imposewhatamountstoalevyonremittance.Oneexampleisthe

applicationofa‘liftingfee’–achargeincurredbytheremittance

receiveroverandabovepaymentsmadebythesender.Accordingto

theWorldBank,theapplicationoftheliftingfeeontransfersfrom

theUStoKenyahastheeffectofdoublingtheeffectivecharge,to

16%(WorldBank,2013a).

Low-levels of financial inclusionFinancialexclusioncompoundstheadverseeffectsofthewider

regulatoryenvironment.MostAfricansare‘unbanked’andthe

formalfinancialsystemhasalimitedreach,especiallyinruralareas.

Theentireregionhasfewerpay-outlocationsthanMexico(IFAD,

2009).Yetfinancialregulatorshave,forthemostpart,preferredto

consolidatethecentralroleofbanksinpayingremittances,rather

thandevolvingauthoritytoproviderswithalargerclientbase.

Around80%ofadultsinSSA–some301millionpeople

(excludingSouthAfrica)–havenoaccountwithaformalfinancial

institution(WorldBank,2011c).Farmorepeopleareconnectedto

MFIsthantoformalinstitutions.Forexample,outofapopulationof

nearly90million,only7.1millionEthiopianshavedepositaccounts.

Accesstofinanceinruralareasislimitedto31MFIs,providing

financialservicesto2.9millionclients(IMF,2013).Similarpatterns

arerepeatedinothercountries.However,whileMFIshavegreater

reach,financialregulationprecludesallbutafewfromproviding

remittancepayments.Thesameistrueofpostoffices,whichhavefar

largerbranchnetworksinmostcountriesthanbanks.

Anti-money laundering provisionsEmergingsecuritylegislationtocountermoneylaunderingandthe

financingofterroristgroupscouldhavetheunintendedeffectof

inflatingremittancecharges.Inparticular,theapplicationofmore

stringentrulesonduediligenceandmoreseverepenaltiesrunthe

riskofreducingcompetitioninanalreadyrestrictedmarket.

Theregulatoryenvironmentforremittanceprovidershas

undergonemajorchangesoverthepastdecade.Authoritiesin

OECDcountrieshavesoughttobringremittanceoperatorsunder

thebroaderrulesgoverningbanksandfinancialinstitutions.

Atthesametime,theglobalisationofcriminalnetworksand

perceivedthreatsposedbyterroristfinancinghaveledtoa

concerteddrivetocombatmoneylaundering.TheFinancial

ActionTaskForce(FATF),aninter-governmentalbodyestablished

in1989,hasplayedaprominentroleinframingmultilateral

standardsandmonitoringnationalplans.Themostrecentsetof

recommendationswasadoptedin2012(FATF,2012).

Animportantbackdroptoreformhasbeenthemergingof

financialregulationandnationalsecurityprovisionsintheUS.

Legislationadoptedintheaftermathof9/11hashadfar-reaching

implications.TheUSPatriotAct(2001)(UnitedStatesDepartment

oftheTreasury,2001a),alongwithtwoExecutiveOrders,11greatly

increasedthepotentialrisksforfinancialinstitutionsassociated

withremittanceorganisations.12Oneofthemorewidelypublicised

consequencesoftheregulatoryburdenandriskassociatedwith

thenewlegislativeenvironmentwasthedecisionbyanumber

ofbankstocloseaccountsservingSomaliremittanceproviders

(Hurlburt,2012).Moregenerally,aseriesofhigh-profileanti-

moneylaunderinginvestigationsandlargefinesimposedonbanks

hasproducedaregulatory‘chill’effect.

DevelopmentsinEuropehavetosomedegreemirroredthose

intheUS.WhiletheEUhasamorefragmentedregulatory

landscape,thePaymentsServiceDirective(2007)andAnti-

MoneyLaunderingDirective(2005)provideforamorestringent

regulatoryenvironment.Thereisanincreasedemphasisonfirms

identifyingandmanagingmoney-launderingrisks.USlegislation

hasalsohadconsequencesforEurope.InMay,2013,Barclays

announcedthatitwouldcloseallbut19ofitsclientsinthe

remittancetransferbusiness,includingthoseinSomalia–amove

thatwouldhavehaddisastrousconsequences.Aninjunction

preventingBarclaysfromclosingtheaccountofthelargest

MTOservingtheSomaliregions–Dahabshill–hasprovideda

temporarystay,butnolong-termresolutionisinsight.

Thewiderdangeristhatmorestringentreportingrequirements

willfurtherlimitcompetitioninremittancemarkets.Ifsmaller,

informalremittanceprovidersareunabletooperatethrough

correspondentbanks,theirabilitytocompeteagainstthemajor

globalcompanieswillbecompromised.Inaddition,thecosts

ofcomplyingwith‘knowyourcustomer’requirementshasthe

potentialtoincreaseregulatorycostsandcreateanotherbarrier

tomarketentry.MTOswillinevitablypassthecostofanti-money

launderingoperationsontoconsumers.Oneproposaltoaddress

thisissue,framedbytheFATF,envisagesaminimalthresholdfor

remittancesrequiringdetailedinformationonsenders.

26 ODI Report

Remittancesaresettoremainamajorsourceofdevelopment

financeforAfrica–andAfrica’sdiasporawillremainan

importantstakeholder.Yetitishardtoescapetheconclusion

thatalargegapremainsbetweenpotentialandrealisedbenefits.

Closingthatgapwillrequireactiononseveralfronts.

Thereisnoshortageofinnovativeprojectsandprogrammes.

Remittancetransfersfigureprominentlyinawiderange

ofinterventionssupportedbytheWorldBank,theAfrican

DevelopmentBankandbilateraldonorstostrengthenthe

efficiencyofbankpaymentsystems,promotebranchlessbanking

andsupportthedevelopmentofaregulatoryenvironment

aimedatstrengtheningcompetition.Thescopeofinnovationis

wellcapturedinarecentWorldBankpublication(Mohapatra

andRatha,2011),andfinancialinclusionhasbeenacentral

theme.Forexample,IFADandtheUniversalPostalUnionhave

supportedthedevelopmentofpost-officeremittanceservicesin16

corridorsinWestAfrica,spanningBenin,BurkinaFaso,Maliand

Senegal.Whilerelativelysmallinscale,theprojecthasreportedly

reducedthecostandtimeofremittancetransfers(IFAD).

Mobiletechnologiesarenowbeingappliedmorewidely

toremittancetransfers.OrangeMoneyTransferInternational

(OMTI),whichwaslaunchedin2012,haslinkedupwithMFS

Africa–acompanythatoperatesacrosstheregion–toenable

customerstomakepaymentstomobileaccounts.OMTIhas

reportedlyestablishedanetworkof1,000agentsinMalawi.

However,itisnotclearthatmarketentryhasreducedcharges.

Thatoutcomepointstoamajorconcern.Newtechnologies

introducedintoanuncompetitivemarketwillnotautomatically

generateprice-reducingbenefitsforconsumers.Mobilebanking

companiesareincreasinglyenteringremittancemarketsthrough

partnershipswiththemajorglobalMTOs.M-Pesa,theKenya

mobilebankerlinkedtoVodafone,hasteamedupwithWestern

UnionandMoneyGram.WesternUnionisalsoexpandingits

rangeofmobileservicesinAfricathroughamobilemoney

companycalledeTranzact,whichhasoperationsinNigeria,

Ghana,Kenya,Zimbabwe,SouthAfrica,Côted’Ivoireandthe

UK.CustomersofeTranzactwillnowbeabletointeractwith

WesternUnionontheirmobilephones,receivingWesternUnion

mobilemoneytransferfrom23‘sender’countries.Intheabsence

ofchangesinunderlyingmarketconditions,thereisnoimmediate

reasontoanticipatemajorpricereductions.

Regulationisoneoftheunderlyingconditions.M-PESA’s

recordsindrivingdownthecostsofretailbankingandexpanding

accessisinstructive.Severaldistinctivefeaturesintheregulatory

environmentstandout(Vaughanetal.,2013).First,financial

regulatorsstoodasideoncetheinitialpaymentarchitecture

hadbeenputinplace,allowingawaveofcompetitionintothe

retailbankingsystem.Second,thecompaniesinvolvedinvested

ininformingpeopleabouttheservicesonoffer,includingthe

provisionoftransparentfinancialinformation.Third,growthhas

generateditsownmomentum.M-PESAhassincebeenextended

tosavingsandloansproducts.

Unfortunately,financialregulatorshaveshownlittleinclination

topromotetheuseofdevolvedmobilebankingforremittances.

Thetechnologiesthemselvescouldbeeasilyadaptedforuseby

licensedpostofficesandmicro-financeinstitutions.Emerging

deliverymodelsinvolving‘M-wallets’,essentiallymobilemoney

accounts,aregraduallyreplacingformalbankinginAfrica–but

principallyindomestictransfers.Withtwo-thirdsofpay-out

locationsservicedbybanksinpartnershiparrangementswith

WesternUnionandMoneyGram,mobilebankingarrangements

aremediatedthroughhigh-costformalbanks.Regulatorsin

Africahavejustifiableconcernsovertheirabilitytomanagethe

foreigncurrencyrisksandanti-moneylaunderingconcernsthat

mightaccompanymobileremittanceoperations(UNCTAD,

2012).However,thereareclearlyvestedintereststhatcouldbe

compromisedbyamorecompetitivemarket.

Initiativesinvolvingthediasporaandgovernmentscouldplay

aroleinstrengtheningtheflowofbenefitsfromremittances.

Remittancesarenotjustaneconomictransfer.Theyrepresent

asociallinkbetweenpeople.Migrantsaroundtheworldhave

created‘hometownassociations’throughwhichtheyretainlinks

andprovidesupporttocommunities–andAfrica’sdiasporaisno

exception(Orozcoetal.,2010;Hernández-CossandBun,2007).

Someinitiativeshaveattemptedtopromotediaspora

philanthropythroughpublicfinanceincentives.Oneexampleis

Mexico’s‘3X1’programme.Establishedin1999,theprogramme

generatesaremittance-leverageeffect.Forevery$1contributed

byadiasporamemberthroughadedicatedMexicanHomeTown

AssociationintheUS,municipal,stateandfederalgovernments

eachallocateanadditionaldollar,withtheprogrammeused

tofundprojects.Attheendof2010,itwasoperatingin

28ofMexico’s31statesandhadapproved2,488projects,

rangingfromeducation,health,roadpavinganddrainage

tosportsprogrammes.Thebenefitsoftheprogrammeare,

however,contested.Supporterspointtoarangeofdevelopment

investments,whilecriticsarguethatthefundsareweaklytargeted

tothepoorestmunicipalitiesandthatthereisevidenceofpolitical

biasinallocation(AparicioandMeseguer,2011).Animportant

questionintheAfricancontextiswhethernationalandlocal

governmentshavethefiscalspacetoprovidematchinggrants.

Governanceconcernswouldalsohavetobeconsideredina

numberofcountries,especiallythoselackingtransparentpublic

financialmanagementsystems.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 27

4. Unlocking the benefits of remittances for development

Diasporasavingsrepresentanotherpotentialsourceof

developmentfinancing.WithgovernmentsacrossAfricaseeking

long-term,affordablefinancingforinfrastructure,thesesavings

areanattractiveproposition.Severalhaveissueddiaspora

bondstosupplementaid,grantsandsovereigndebt.In2008,

EthiopiaissuedaMillenniumBondunder-writtenbythecountry’s

NationalBank.Anotherbond–for$4.8billion–wasissuedin

2011tomobilisefinancingfortheRenaissanceDam(Kayode-

AngladeandSpio-Garbrah,2012).Theearlierissuefailedto

achieveitstargetsandthelatterwaseventuallysoldprincipally

intodomesticmarkets.Inbothcases,authoritiesappeartohave

over-estimatedthe‘patrioticdiscount’–thewillingnessofmigrant

toacceptrisksthatarenotcommensuratewithyield.

Pastfailureisnotapredictoroffutureoutcomes.InMarch

2014,Nigeriaannouncedabondissueofupto$300million.

Theissuehasbeencarefullypreparedwiththeinvolvementof

internationalbanks.ItwillberegisteredwiththeUSSecurities

andExchangeCommissionwithacouponrateofaround350

basispointsaboveUStreasurybills.Atthatlevelitappearslikely

thatthebondwillbeover-subscribed.Thisisapotentialwin-win

scenario.TheGovernmentofNigeriastandstosecurefinancingat

levelsbelowtherateavailableonsovereigndebtmarkets(around

8-9%)andthediasporawouldhaveaccesstoanassetgenerating

higherreturnsthantheclose-to-zerorealinterestonbankdeposits

intheUS(Kay,2014).

Alloftheseinitiativesmayhavearoletoplay–butnone

cansubstituteforthesinglemosteffectivemeasureneededto

strengthenthebenefitsofremittances.Themostpressingneedis

todevelopmorecompetitiveandtransparentmarketsinwhich

innovationcantakeoff.

Five priority areas for reform stand out. • Regulatory authorities in OECD countries should actively

review the practices of money transfer operators. Thereisnoevidenceofactivecollusivepricingandothercartel-type

arrangementsonthepartofglobalMTOs.However,ina

marketcharacterisedbysuchextremeconcentrationsof

economicpowerandsuchlimitedcompetition,thereisarisk

ofmonopolisticabuse.EUandUSanti-trustbodiesshould

alsoinvestigatewhetherexclusivityarrangementsinvolving

MTOsartificiallyinflatechargesandpreventconsumers

benefitingfromcompetition.InthecaseoftheUK,which

wehavereviewedinthisreport,theFinancialConduct

Authorityshouldreviewprovisionsforthepricingofcurrency

conversion.Investigationsbyparliamentarycommittees–such

astheFinanceandServicesCommitteeandtheInternational

DevelopmentCommittee–couldplayaroleininforming

debateandincreasingawarenesswithinthediaspora

community.

• Money transfer operators should be required to meet more transparent standards on their foreign exchange operations.TheDodd-FranklegislationadoptedintheUScouldprovide

ablueprint(Richard,2011).Thelegislationwascreated,in

part,toprotectAmericantaxpayersagainstabusivefinancial

servicepractices.Inthecontextofremittances,itrequires

serviceproviderstodisclosedetailsoftheirchargingstructures,

includingforeigncurrencyconversionfees.ThenewRemittance

TransferRulewillcoverinformationonexchangerates,fees

andtaxesincurredbyboththesenderandreceiver.Itwillalso

requirefederalagenciestoprovideclearguidelinesonlow-cost

remittanceproviders.Theseareallprinciplesthatcouldbe

adaptedintheEUandotherOECDremittancesources.

• African governments (and money transfer operators) should revoke exclusivity arrangements with banks and agents.Whatevertheirintention,exclusivityarrangementshave

theeffectofreducingcompetitionandincreasingthecost

ofmarketentryfornewcompanies.MTOexclusivity

arrangementswithagentscreatehighlysegmentedmarkets

characterisedbylimitedcompetition.Similarly,exclusivity

arrangementsbetweenMTOsandbankshavethesameeffect

asrestrictivebusinesspracticesthatareoutlawedinother

areas.Governmentsshouldusetheirregulatorypowerstolimit

thescopeforexclusivity,bothwithrespecttobankingandthe

activitiesofMTOagents.

• Regulatory authorities should empower post offices and micro-finance institutions to play a greater role in remittance markets.Whilefinancialregulatorsandcentralbanksneed

toprotectconsumerinterestsandmanageforeignexchange

risks,currentarrangementsareoutmoded.Postofficesand

micro-financeinstitutionsarefarmoreaccessibletomost

Africans,especiallyinruralareas.Well-designedandeffectively

monitoredlicensingsystemscouldfacilitatethedevelopment

ofafarmoredevolvedandcompetitiveremittancepayments

system.Allowingmoreactorstoperformmoneytransferswill

introducegreatercompetition,withpotentialbenefitsforprice

andservicequality.

• Diaspora groups and civil-society organisations should make remittances a core development issue. Manyoftheconcerns

raisedinthisreportrelatetomarketstructures,regulatory

arrangementsandinstitutions.Butthebarrierstoreformare

notonlylegalandtechnical.Politicaleconomyconsiderations

arealsoimportant.Currentremittance-marketconditions

createwinnersandlosers.Thewinnersincludemajorglobal

companieswithastrongpoliticalvoice,theirshareholders

andstakeholdersinformalbankingsystems.Thelosers–

remittancesendersandrecipients–are,forthemostpart,

highlydispersedandhaveaweakpoliticalvoice.Effective

actiontopublicisethedevelopmentcostsassociatedwith

remittances,mobilisepublicsupportforreformandpushthe

issuetothecentreofthedevelopmentagendacouldplaya

vitalroleinshiftinganunequalpowerrelationship,andin

galvanisingreform.

28 ODI Report

RemittancesalreadyplayasignificantroleinAfrica’s

development.Theycould,however,playafargreaterrole.

Nomeasurewoulddomoretounlockthefullpotentialof

remittancesthanacutincharges.Achievingthisgoalwill

requiresomesignificantchanges–inbankingregulations,inthe

practicesofmoneytransferoperators,andinapproachestonew

technology.Theintroductionofmorecompetitivemarketswith

appropriatesafeguardsforfinancialintegrityislongoverdue.Yet

despiteanumberofhigh-levelinitiatives,thereislittleevidence

ofchargescomingdown.Thispictureisunlikelytochangeuntil

thereformofremittancesistakenupasadevelopmentpriorityby

governmentsinAfrica,theG20andcivil-societygroups,including

Africandiasporaorganisations.

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 29

Conclusion

Technical annex

1. Computation of fee (%) and foreign exchange margin (%).

Fee (%)=LCU fee * 100

LCU amount

LCU=LocalCurrencyUnit

FX margin (%)=FX Interbank – FX MTO * 100

FX MTO

FX=ForeignExchange

Total Cost =Fee(%)+ FX margin(%)

( (

( (

2. Estimated losses from SSA’s remittances ‘super tax’ (2013)

Percentage Value ($ billion)

Global remittances to sub-Saharan Africa (SSA) 32

Intermediary charges on remittances to SSA (average) 12.3 3.9

Costs for SSA if (fee + FX margin) were reduced to

Global average (excluding SSA) 7.8 2.5

5% of remittance flows 5 1.6

Estimated losses for SSA are in the range [1.4 – 2.3]

3. Estimated costs from Western Union and MoneyGram based on reported charges and market share of pay-out locations (Market share for all MTOs is 89.4% in market of $32 billion)

Reported charges: Fee + FX margin (%)

Market share (%) Value of charge ($ million)

Western Union 9.4 40.3 1,084(a)

MoneyGram 10.4 24.2 720

Costs for SSA if (fee + FX margin) were reduced to 7.8% (global average)

Western Union 899(b)

MoneyGram 540

Estimated loss associated with gap between global average charge and company charge

Western Union 185(c)

MoneyGram 180

Total 365

Notes: (a) 1,084ML= 32bn X 0.894 X 0.403 X 0.094; (b) 899ML= 32bn X 0.894 X 0.403 X 0.078; (c) 185ML= 1,084ML – 899ML.

30 ODI Report

ReferencesABDIH,Y.,CHAMI,R.,DAGHER,J.&MONTIEL,P.2010.RemittancesandInstitutions:AreRemittancesaCurse?Available:http://

web.williams.edu/Economics/wp/MontielRemittancesAndInstitutions.pdf

ACOSTA,P.A.,LARTEY,E.K.K.&MANDELMAN,F.S.2009.RemittancesandtheDutchdisease.Journal of International

Economics,79(1),pp.102-116.

ADAMSJR,R.H.&PAGE,J.2005.Dointernationalmigrationandremittancesreducepovertyindevelopingcountries?World

Development,33(10),pp.1645-1669.

ADAMS,R.H.&CUECUECHA,A.2013.TheImpactofRemittancesonInvestmentandPovertyinGhana.World Development,50,24-40.AFRICANDEVELOPMENTBANKGROUP(AFDB).2009.AfricaandtheGlobalEconomicCrisis:StrategiesforPreservingthe

FoundationsofLong-termGrowth.Working Paper Series No. 98 [Online].Available:http://www.afdb.org/fileadmin/uploads/afdb/

Documents/Publications/WORKING%2098.pdf

AFRICANINSTITUTEFORREMITTANCES(AIR)PROJECT.2013.FrequentlyAskedQuestions(FAQ)(RevisedVersion).Available:

http://www.worldbank.org/content/dam/Worldbank/document/Africa/african-institute-for-remittances-september-2013-faq.pdf

AGUNIAS,D.R.2006.RemittancesandDevelopment-Trends,Impacts,andPolicyOptions,AReviewoftheLiterature.Migration

Policy Institute, Policy Brief, pp. 28-30 [Online].Available:www.migrationpolicy.org/pubs/mig_dev_lit_review_091406.pdf

APARICIO,F.J.&MESEGUER,C.2011.CollectiveRemittancesandtheState:The3X1PrograminMexicanMunicipalities.World Development.

AREZKI,R.&BRÜCKNER,M.2011.Rainfall,FinancialDevelopment,andRemittances:EvidencefromSub-SaharanAfrica.IMF

Working Paper WP/11/153 [Online].Available:http://www.imf.org/external/pubs/ft/wp/2011/wp11153.pdf

AZAM,J.&GUBERT,F.2005.ThoseinKayes.TheImpactofRemittancesonTheirRecipientsinAfrica.Revue économique - Presses

de Sciences-Po,56(6),pp.1331-1358.

AZAM,J.-P.&GUBERT,F.2006.Migrants’RemittancesandtheHouseholdinAfrica:AReviewofEvidence.Journal of African

Economies,15(suppl.2),pp.426-62.

BAIRD,S.,MCINTOSH,C.&ÖZLER,B.2011.Cashorcondition?Evidencefromacashtransferexperiment.Quarterly Journal of

Economics,126(4),pp.1709-1753.

BBCNEWSEUROPE.2014.More than 1,100 migrants rescued off Italy in one day, 6th February 2014 [Online].Available:http://www.

bbc.co.uk/news/world-europe-26064697

BETTIN,G.,PRESBITERO,A.F.&SPATAFORA,N.2014.RemittancesandVulnerabilityinDevelopingCountries.IMF Working

Paper WP/14/13 [Online].Available:https://www.imf.org/external/pubs/ft/wp/2014/wp1413.pdf

BETTS,A.2008.Towardsa‘softlaw’frameworkfortheprotectionofvulnerablemigrants.New Issues in Refugee Research, UNHCR

Research Paper No. 162 [Online].Available:http://www.unhcr.org/48b7f9642.pdf

BORRAZ,F.2005.Assessingtheimpactofremittancesonschooling:theMexicanexperience.Global Economy Journal,5(1).

CENTRALBANKOFNIGERIA.2008.ExclusivityClausesintheAgreementssignedbyNigerianBankswithInternationalMoney

TransferOperatorsINTERNATIONALMONEYTRANSFEROPERATORS.BSD/DIR/CIR/GEN/VOL. 2/017 [Online].Available:

http://www.cenbank.org/OUT/CIRCULARS/BSD/2008/CIRCULAR%20ON%20EXCLUSIVITY%20CLAUSE.PDF

CLEMENS,M.A.&OGDEN,T.N.2013.MigrationasaStrategyforHouseholdFinance:Aresearchagendaonremittances,

payments,anddevelopment.Financial Access Initiative (FAI) New York University working paper 10/2013 [Online].Available:

http://www.financialaccess.org/sites/default/files/publications/migration-as-a-strategy-for-household-finance-2013_0.pdf

CLOTTEAU,N.&ANSÓN,J.2011.RoleofPostOfficesinRemittancesandFinancialInclusion.Migration and Development Brief

15, Migration and Remittances Unit of the World Bank [Online].Available:http://siteresources.worldbank.org/INTPROSPECTS/

Resources/334934-1110315015165/MigrationandDevelopmentBrief15.pdf

CONSUMERFINANCIALPROTECTIONBUREAU(CFPB).2011.Reportonremittancetransfers.Available:http://files.

consumerfinance.gov/f/2011/07/Report_20110720_RemittanceTransfers.pdf

CONSUMERFINANCIALPROTECTIONBUREAU(CFPB).2014.ConsumerFinancialProtectionBureauProposesRuletoOversee

LargerNonbankInternationalMoneyTransferProviders.Available:http://files.consumerfinance.gov/f/201401_cfpb_factsheet_

nonbank-money-transfers.pdf

CONSUMERSINTERNATIONAL.2012.Theremittancesgameofchance:playingwithloadeddice?Executivesummary.Available:http://

es.consumersinternational.org/media/886770/the%20remittances%20game%20of%20chance%20-%20executive%20summary.pdf

COXEDWARDS,A.&URETA,M.2003.Internationalmigration,remittances,andschooling:EvidencefromElSalvador.Journal of

Development Economics, Special Issue 2,72,pp.429-61,.FAOFOODSECURITYANDNUTRITIONANALYSISUNIT-SOMALIA.2013.FamilyTies:Remittances

andLivelihoodsSupportinPuntlandandSomaliland.Available:http://www.fsnau.org/downloads/

family-ties-remittances-and-livelihoods-support-puntland-and-somaliland-study-report

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 31

FINANCIALACTIONTASKFORCE(FATF).2012.InternationalStandardsonCombatingMoneyLaunderingandtheFinancial

ofTerrorismandProliferation,TheFATFRecommendations.Available:http://www.fatf-gafi.org/media/fatf/documents/

recommendations/pdfs/FATF_Recommendations.pdf

GUPTA,S.,PATTILLO,C.&WAGH,S.2007a.MakingRemittancesWorkforAfrica.IMF Finance and Development [Online],44(2).

Available:https://www.imf.org/external/pubs/ft/fandd/2007/06/gupta.htm

GUPTA,S.,PATTILLO,C.A.&WAGH,S.2007b.ImpactofRemittancesonPovertyandFinancialDevelopmentinSub-Saharan

Africa.IMF Working Paper No. 07/38 [Online].Available:https://www.imf.org/external/pubs/cat/longres.aspx?sk=20428

HERNÁNDEZ-COSS,R.&BUN,C.E.2007.TheUK–NigeriaRemittanceCorridor-ChallengesofEmbracingFormalTransfer

SystemsinaDualFinancialEnvironment.World Bank Working Paper No. 92, The World Bank Group, Washington, D.C.

and DFID, Department for International Development [Online].Available:http://siteresources.worldbank.org/EXTAML/

Resources/396511-1146581427871/UK-Nigeria_Remittance_Corridor.pdf

HURLBURT,K.2012.UnitedStatesAnti-MoneyLaunderingRegulationsandCombatingtheFinancingofTerrorism.SHURAAKO

[Online].Available:http://shuraako.org/sites/shuraako.org/files/anti-money-laundering-casestudy_1.pdf

HUTTON,G.,HALLER,L.&BARTRAM,J.2007.Economicandhealtheffectsofincreasingcoverageoflowcosthousehold

drinking-watersupplyandsanitationinterventionstocountriesoff-tracktomeetMDGtarget10.Public Health and the

Environment - Water, Sanitation and Health, Wolrd Health Organization (WHO) and UNDP, WHO/SDE/WSH/07/05 [Online].

Available:http://www.who.int/water_sanitation_health/economic/mdg_global_costing.pdf

HUTTON,G.&BARTRAM,J.2008RegionalandGlobalCostsofAttainingtheWaterSupplyandSanitationTarget(Target10)of

theMillenniumDevelopmentGoalsPublic Health and the Environment, Assessing & Managing Environmental Risks to Health,

World Health Organization (WHO) WHO/HSE/AMR/08/01 [Online].Available:http://www.who.int/water_sanitation_health/

economic/mdg_global_costing.pdf

INTERNATIONALFUNDFORAGRICULTURALDEVELOPMENT(IFAD).Extension of international and domestic postal financial

services, including remittance-related services, to rural areas of French-speaking countries in Western Africa [Online].Available:

http://www.ifad.org/remittances/projects/africa/francophone.htm

INTERNATIONALFUNDFORAGRICULTURALDEVELOPMENT(IFAD).2009.SendingMoneyHometoAfrica,Remittance

markets,enablingenvironmentandprospects.Available:http://www.ifad.org/remittances/pub/money_africa.pdf

INTERNATIONALMONETARYFUND(IMF).2013.TheFederalDemocraticRepublicofEthiopia2013ArticleIVConsultation.

Country Report No. 13/308 [Online].Available:http://www.imf.org/external/pubs/ft/scr/2013/cr13308.pdf

INVESTIGATIONREPORTTOCOMPETITIONCOMMISSION.2011.ExclusiveContractsAgreementsintheMoneyTransfer

ServicesinTheGambia,ExecutiveSummary.Available:http://www.gcc.gm/downloads/FINALREPORT.pdf

KAY,C.2014.NigeriaConsidersDoublingDiasporaBondtoLureCitizens.Available:http://www.bloomberg.com/news/2014-01-21/

nigeria-considers-doubling-diaspora-bond-to-lure-citizens-abroad.html

KAYODE-ANGLADE,S.&SPIO-GARBRAH,N.2012.DiasporaBonds:SomeLessonsforAfricanCountries.African Development

Bank (AfDB) Africa Economic Brief Volume 3 Issue 13 [Online].Available:http://www.afdb.org/fileadmin/uploads/afdb/Documents/

Publications/Economic%20Brief%20-%20Diaspora%20Bonds%20Some%20Lessons%20for%20African%20Countries.pdf

LAKNER,C.&MILANOVIC,B.2013.GlobalIncomeDistribution-FromtheFalloftheBerlinWalltotheGreatRecession.Policy

ResearchWorkingPaper6719,TheWorldBank,DevelopmentResearchGroup,PovertyandInequalityTeam,December2013

[Online].Available:http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-6719

LOPEZ-CORDOVA,E.2005.Globalization,Migration,andDevelopment:TheRoleofMexicanMigrantRemittances.Journal of the

Latin, American and Caribbean Economic Association (LACEA),6(1).

MCKAY,C.&PICKENS,M.2010.BranchlessBanking2010:Who’sServed?AtWhatPrice?What’sNext?CGAP Focus Note No. 66,

The Consultative Group to Assist the Poor (CGAP), Washington, D.C. [Online].Available:http://www.cgap.org/sites/default/files/

CGAP-Focus-Note-Branchless-Banking-2010-Who-Is-Served-At-What-Price-What-Is-Next-Sep-2010.pdf

MOHAPATRA,S.&RATHA,D.2011.RemittancemarketsinAfrica,WorldBankPublications.Available:http://siteresources.

worldbank.org/EXTDECPROSPECTS/Resources/476882-1157133580628/RMA_FullReport.pdf

MONEYGRAM.2014.MoneyGram International Reports Fourth Quarter and Fiscal 2013 Financial Results [Online].Available:

http://ir.moneygram.com/releasedetail.cfm?ReleaseID=824690

OROZCO,M.2012.FutureTrendsinRemittancestoLatinAmericaandtheCaribbean.Remittances & Development Program Report

[Online].Available:http://www.thedialogue.org/PublicationFiles/IAD8642_Remittance_0424enFINAL.pdf

OROZCO,M.&MILLIS,B.2007.Remittances,CompetitionandFairFinancialAccessOpportunitiesinNigeria.USAID [Online].

Available:http://www.thedialogue.org/PublicationFiles/NigeriaAMAP%20FSKG%20-%20Nigeria%20Remittances-%20FINAL.pdf

OROZCO,M.,BURGESS,E.&MASSARDIER,C.2010.RemittancetransfersinSenegal:Preliminaryfindings,lessons,and

recommendationsonitsmarketplaceandfinancialaccessopportunities.International Migration Paper No. 109 by the International

Labour Office (ILO), International Migration Programme and Social Finance Programme, Geneva [Online].Available:http://www.

ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---migrant/documents/publication/wcms_177453.pdf

32 ODI Report

PARINDURI,R.A.&THANGAVELU,S.M.2011.ImpactofRemittancesonHumanCapitalDevelopmentofChildreninIndonesian

Household,UniversityofNottinghampublication.Available:http://www.nottingham.ac.uk/gep/documents/conferences/2011/

malyasia-conf-january/shandre-thangavelu.pdf

PLAZA,S.&RATHA,D.2011.HarnessingDiasporaResourcesforAfrica,Overview.Available:http://siteresources.worldbank.org/

EXTDECPROSPECTS/Resources/476882-1157133580628/DfD_overview.pdf

PRNEWSWIRE–AUBMPLCCOMPANY.2013.Dahabshiil Wins Injunction Against Barclays [Online].Available:http://www.

prnewswire.com/news-releases/dahabshiil-wins-injunction-against-barclays-230688421.html

PRADHAN,G.,UPADHYAY,M.&UPADHYAYA,K.2008.RemittancesandEconomicGrowthinDevelopingCountries.

The European Journal of Development Research [Online],20(3),pp.497-506Available:http://ideas.repec.org/a/taf/eurjdr/

v20y2008i3p497-506.html

RAJAN,R.G.&SUBRAMANIAN,A.2005.WhatUnderminesAid’sImpactonGrowth?IMF Working Paper WP/05/126, Research

Department [Online].Available:https://www.imf.org/external/pubs/ft/wp/2005/wp05126.pdf

RATHA,D.2007.LeveragingRemittancesforDevelopment.Migration Policy Institute Policy Brief, World Bank, Washington, DC.

RATHA,D.2013.Theimpactofremittancesoneconomicgrowthandpovertyreduction.Migration Policy Institute Policy Brief

[Online].Available:http://www.migrationpolicy.org/research/impact-remittances-economic-growth-and-poverty-reduction

RATHA,D.,MOHAPATRA,S.&SCHEJA,E.2011.ImpactofMigrationonEconomicandSocialDevelopment-AReviewof

EvidenceandEmergingIssues.TheWorldBankDevelopmentProspectsGroupMigrationandRemittancesUnitandPoverty

ReductionandEconomicManagementNetwork,PolicyResearchWorkingPaper5558.Available:http://elibrary.worldbank.org/doi/

pdf/10.1596/1813-9450-5558

RICHARD,C.C.2011.Dodd-Frank,InternationalRemittances,andMobileBnaking:TheFederalReserve’sRoleinEnabling

InternationalEconomicDevelopmentNorthwestern University School of Law, Northwestern University Law Review Colloquy Vol.

105 [Online].Available:https://www.law.northwestern.edu/lawreview/Colloquy/2011/7/LRColl2011n7Richard.pdf

SANDER,C.&MUNZELEMAINBO,S.2003.MigrantLaborRemittancesinAfrica:ReducingObstaclestoDevelopmental

Contributions.Africa Region Working Paper Series 64.

SHONKWILER,GRIGORIAN&MELKONYAN2008.GarbageIn,GospelOut?ControllingforUnderreportingofRemittances.

International Monetary Fund Working Paper WP/08/230.

SUAREZ-OROZCO,C.,TODOROVA,I.L.&LOUIE,J.2002.Makingupforlosttime:theexperienceofseparationandreunification

amongimmigrantfamilies.Fam Process,41(4),pp.625-43.

THEECONOMIST.2012.Over the sea and far away [Online].Available:http://www.economist.com/node/21554740

UNCHRONICLE.2013.Leveraging Migration and Remittances for Development [Online].Available:http://unchronicle.un.org/article/

leveraging-migration-and-remittances-development/

UNCTAD.2012.TheLeastDevelopedCountriesReport2012-HarnessingRemittancesandDiasporaKnowledgetoBuildProductive

Capacities.Available:http://unctad.org/en/PublicationsLibrary/ldc2012_en.pdf

UNESCO.2013/4.EducationforAll-GlobalMonitoringReport-2013/4Report,Teachingandlearning:Achievingqualityforall.

Available:http://www.unesco.org/new/en/education/themes/leading-the-international-agenda/efareport/reports/2013/

UNHCR.2013.RegionalBureauforAfrica,FactSheetOctober2013.Available:http://www.unhcr.org/526934e89.html

UNHCR.2014.2014 UNHCR country operations profile - Africa, Working environment [Online].Available:http://www.unhcr.org/

pages/4a02d7fd6.html

UNITEDSTATESDEPARTMENTOFTHETREASURY-FINANCIALCRIMESENFORCEMENTNETWORK(FINCEN).2001a.Uniting

andStrengtheningAmericabyProvidingAppropriateToolsRequiredtoInterceptandObstructTerrorism(USAPATRIOT)Actof2001.

UNITEDSTATESDEPARTMENTOFTHETREASURY-OFFICEOFFOREIGNASSETSCONTROL.2001b.ExecutiveOrder

13224-BlockingPropertyandProhibitingTransactionswithPersonswhoCommit,ThreatentoCommit,orSupportTerrorism

Available:http://www.treasury.gov/resource-center/sanctions/programs/documents/terror.pdf.

UNITEDSTATESDEPARTMENTOFTHETREASURY.2010.PresidentialDocuments,ExecutiveOrder13536ofApril12,2010,

BlockingPropertyofCertainPersonsContributingtotheConflictinSomalia.Federal Register / Vol. 75, No. 72 / Thursday, April

15, 2010 / Presidential Documents, pp. 19869-19872 [Online].Available:http://www.treasury.gov/resource-center/sanctions/

Documents/13536.pdf.

VAUGHAN,P.,WOLFGANG,F.&JOSEPH,M.2013.Scaling-upthroughdisruptivebusinessmodels:Theinsidestoryofmobile

moneyinKenya.In:LAURENCECHANDY,A.H.,HOMIKHARASANDJOHANNESLINN(ed.)Getting to Scale: How to Bring

Development Solutions to Millions of Poor People.Washington,DC:BrookingsPress.

WESTERNUNION.2012Annual Report [Online].Available:http://ir.westernunion.com/files/doc_financials/WU2012ARFinalWeb.pdf.

WORLDBANK.2010.Poverty Overview [Online].Available:http://www.worldbank.org/en/topic/poverty/overview

WORLDBANK.2011a.TheWorldBankMigrationandRemittancesFactbook2011,Sub-SaharanAfrica.Available:http://

siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1199807908806/SSA.pdf

Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 33

WORLDBANK.2011b.Newly Released Data Reveal Drop in Capital Flows to Developing Countries in 2009,

Press Release No: 2011/253/DEC [Online].Available:http://web.worldbank.org/WBSITE/EXTERNAL/

NEWS/0,,contentMDK:22792223~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

WORLDBANK.2011c.MeasuringFinancialInclusion:TheGlobalFindexDatabase,byA.Demirguc-KuntandL.Klapper,2012.

WORLDBANK-MIGRATIONANDREMITTANCESTEAMDEVELOPMENTPROSPECTSGROUP.2013a.Migrationand

DevelopmentBrief21:MigrationandRemittanceFlows:RecentTrendsandOutlook,2013-2016.Available:http://tx2.cdn.caijing.

com.cn/2013-12-18/113706465.pdf

WORLDBANK.2013b.RemittancePricesWorldwide,IssueNo.8,December2013.Available:https://remittanceprices.worldbank.org/

sites/default/files/RPW_Report_Dec2013.pdf

WORLDBANK.2014.WorldDevelopmentIndicators.

WORLDBANKGROUPANDEUROPEANCOMMISSION.2013.RemittancesinAfrica-ACatalogueofStudiesandTechnical

AssistancebytheWorldBank,DevelopmentAgenciesandGovernmentinAfrica.Available:http://siteresources.worldbank.org/

EXTDIASPORA/Resources/Remittances-in-africa.pdf

WORLDBANKANDEUROPEANCOMMISSION.2014.SendmoneyAfrica.Available:https://sendmoneyafrica.worldbank.org/sites/

default/files/SMA_Report_Jan2014.pdf

YANG,D.2005.InternationalMigration,HumanCapital,andEntrepreneurship:EvidencefromPhilippineMigrants’ExchangeRateShocks.

World Bank Policy Research Working Paper 3578 [Online].Available:http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-3578.

34 ODI Report

ODI is the UK’s leading independent think tank on international development and humanitarian issues.

Readers are encouraged to reproduce material from ODI Reports for their own publications, as long as they are not being sold commercially. As copyright holder, ODI requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the ODI website. The views presented in this paper are those of the author(s) and do not necessarily represent the views of ODI.

© Overseas Development Institute 2014. This work is licensed under a Creative Commons Attribution-NonCommercial Licence (CC BY-NC 3.0).

ISSN: 2052-7209

All ODI Reports are available from www.odi.org

Cover photo: Skip Russell, Malawi

Overseas Development Institute

203 Blackfriars Road London SE1 8NJ

Tel +44 (0)20 7922 0300 Fax +44 (0)20 7922 0399

www.odi.org