Sending remittances to Africa is more expensive than anywhere else in the world, a new global report has shown.
The report – Reducing the costs and scaling up service provision for remittance flows from the UK to Africa’ – was released last week at the Global Remittances Conference in New York.
The report argues that existing technology such as regional automated clearing houses, remittance payment processing hubs and aggregators – could all make sending money from the UK to Africa much, much cheaper.
First commissioned by Financial Sector Deepening Africa (FSD Africa) and written by Developing Markets Associates (DMA) on June 12 in London-UK, the report shows that the average cost of sending money to Africa is almost 10 per cent, compared to the global average of just over 7 per cent.
The report shows: “One and a half million people in the UK send over four billion pounds to Africa every year. But nine out of 10 of these transactions are carried out using cash and only one in 20 is initiated online.”
Mr Leon Isaacs, the chief executive officer of DMA, commenting on the findings, said: “Sending money home is very expensive, compared to the relatively low incomes of migrant workers and the small amounts they typically send.”
He added that the real challenges contributing to higher costs of sending money from the UK to Africa are not fixable by new technologies alone.
“Instead, we need to focus on scaling existing technology, creating the regulatory environments for those technologies and on changing consumer behaviour to make the sending of money digital from ‘end-to-end’,” he said.
Commenting about the findings Ms Jacqueline M. Musiitwa, the executive director FSD Uganda, said: “It’s more expensive to send money to Africa than anywhere else in the world. But it doesn’t have to be like that. The way we stay in touch, do our shopping, and even the ways in which some of us find love, have all gone digital.”
“Yet, for the vast majority of people sending money home to friends and family in Africa, they are still doing it the way they have always done it: in cash,” Ms Musiitwa added.
Mr Stephen Kaboyo, the executive partner at Alpha Capital, a foreign exchange firm, said what drives remittance costs in African and Uganda in particular is lack of competition and strong market structures.
“Because of the small number of providers, Uganda has higher average fees compared to other countries. Countries with large number of migrants and competition tend to exhibit lower costs,” he said.
He further explained that remittances are very sensitive to costs and this can be a very big disincentive.
His anticipation is that if costs went down-in Uganda, there would certainly be a significant increase in remittances.
Explaining this, Mr Sula Blick, a Ugandan businessman living and working in the UK, however, said sending money to Uganda is not much different from sending money to the USA.
“The options at hand are a telegraphic transfer which costs about £15 (Shs67,500) for a service which takes about two days. Receiving money from Uganda using the same method actually clears same day if you send first thing in the morning,” Mr Blick shared.
He said the other option at hand is ‘World remit. “With that company you can transfer funds from your debit card to Airtel or MTN money,” he said.
New estimates show that in 2015, a total of £4.1b (Shs18.4 trillion) was sent in the form of remittances from the UK to Africa.
On average, the money sent is around £240 (Shs1 million) and it is this money which is subjected to high charges thus making it an expensive exercise.
According to the report, it would cost less if developments in technology using new digital remittance services are used to send money, but most people transferring money from the UK to Africa are not using them.
“In fact, in the UK nine out of ten money transfer transactions are still being initiated at a counter, such as a post office branch or retail store, and just one in ten are made digitally (including online, bank transfers and using cards),” the report showed.
On average, the cost of sending money from the UK to Africa varies between 11 per cent for ‘cash-to-cash’ transfers, 8 per cent for online services and 6 per cent for those terminating into a mobile wallet.
Statistics suggest that over a million people in the UK are paying on average £80 (Shs360,000) a year more than they should to send money to friends and family in Africa.
“If these senders shopped around, and switched to use the digital services available on the market, then over a £100m (Shs450 billion) a year could be saved in total fees,” the report indicated.
However, according to a World Bank survey on UK remittance senders, this behaviour is not stemming from lack of access to banking payment services.
Because according to the survey nine out of ten people sending money have a UK bank account, seven out of ten are doing internet shopping, around half are using online banking, almost all have a mobile phone, and the majority a smartphone
Some of the most expensive countries to send money to from the UK include Eritrea, Tanzania, Rwanda, Zambia, Ethiopia, South Sudan and Gambia. In each of these, the average cost is more than 10 per cent of the amount being sent.
In Uganda, £181 million (Shs814 billion) is sent each year by 65,447 Ugandans living in the UK.
The report shows that on average, sending money to Uganda from the UK costs £120 (Shs540,000). This indicates a 9 percent and this is significantly higher than the cost of sending money to neighbouring Kenya, where it costs 7 per cent.
On the other hand, sending money to neighbouring Tanzania costs twice as much (14 percent). £334 million (Shs1.5 billion) is sent each year by 151,073 Kenyans living in the UK.
In Rwanda, £9 million (Shs40.5 billion) is sent each year by 4,781 Rwandans living in the UK. The average cost of sending £120 (Shs540, 000) from the UK to Rwanda is 13 per cent, among the highest average cost in the region.