Africa’s development hit hard by ‘Super Tax’ on remittances
These excess fees cost the African continent $1.8 billion a year, enough money to pay for the primary school education of 14 million children in the region. (Image: The African Economist)
The African diaspora are impacted by the highest remittance fees globally, regularly paying a ‘super tax’ of 12% to transfer money to relatives in sub-Saharan Africa, which is almost double the global average, according to the Overseas Development Institute (ODI).
The ODI report states that the crux of the issue is weak competition, exclusive agreement between money transfer operators, agents and banks, and flawed financial regulation which contribute to pushing charges higher and holding back development in the world’s poorest continent.
In this context, it is crucial to note that two money transfer operators, namely Western Union and MoneyGram, currently account for two thirds of remittance transfers to Africa.
“We conservatively estimate that the two companies account for $586 million of the loss associated with the remittance ‘super tax’, part of it through opaque foreign currency charges,” the report mentions.
These excess fees cost the African continent $1.8 billion a year, enough money to pay for the primary school education of 14 million children in the region.
“Reducing remittance charges to global average levels would generate $1.8 billion, enough to put 14 million children through primary school, or provide clean water to 21 million people,” reads the ODI report.
Further, the Executive Director of ODI, Kevin Watkins states that the remittance charges are undercutting a vital lifeline to hundreds of thousands of poor families in Africa.
“Africans living in the UK make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and internet transfers,” he adds.
Even though governments from the G8 group of rich nations and the G20 have pledged to reduce charges to 5 percent, there is no evidence of a fall in fees for Africa’s diaspora, the ODI report goes on to note.
According to the report, governments and regulatory authorities in remitting countries should do far more to promote competition and encourage innovation.
Financial regulatory authorities, such as the UK`s Financial Conduct Authority and supporting legislative bodies should actively review the practices of money transfer operator, whereas regulators should also demand higher standards of transparency for foreign exchanges.
On the other hand, African governments should do more to secure a better remittance deal for their citizens, where prohibiting exclusivity agreements is one immediate priority along with ending the stranglehold of banks on remittance payments.