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Sierra Leone Business: Remittances in sub-Saharan Africa is shifting toward intraregional flows.

IMF Resident Representative,Iyabo Masha

The composition of remittances in sub-Saharan Africa is said to be shifting toward intraregional flows. Transmittals among sub-Saharan African (SSA) countries have grown faster than those from the rest of the world in the past five years, according to a recent Note released by the International Monetary Fund (IMF).
Under the sub topic of the Changing Pattern of Remittance Flows in the ‘REGIONAL SPILLOVERS IN SUB-SAHARAN AFRICA-Exploring Different Channels Notes’, it states that whilst total remittance inflows to sub-Saharan African countries have remained constant at slightly over 2 percent of GDP over the past 10 years.
The changing patterns of transfers among SSA countries are relatively large as they account for a third of total remittance inflows, and their share is growing in parallel with declining costs.
Because of a high concentration of outflows from a few countries and the large exposure of some recipient countries, these remittances constitute an important spillover channel.
Spillover effect refers to the impact that seemingly unrelated events in one nation can have on the economies of other nations. Although there are positive spillover effects, the term is most commonly applied to the negative impact a domestic event has on other parts of the world.
“In particular, Côte d’Ivoire and Ghana are important sources for West Africa, while South Africa is the main source for Southern and East Africa. Econometric estimates suggest that growth spillovers between remittance partners are important but may be outweighed by growth spillovers from trading partners, although trading and remittance partners often coincide” the Note says.
Meanwhile, total remittances are becoming relatively more important as other sources of external funding, such as aid and Foreign Direct Investment (FDI) decline. Regional remittances accounted for about 35 percent of the region’s total remittance inflows in 2015.
Measured as a share of GDP, total remittance inflows in sub-Saharan Africa are said to be larger than those in other emerging and developing regions. The relative importance of intraregional inflows in SSA is said to be the third highest, after the Commonwealth of Independent States (CIS), and the Middle East and North Africa.
For some countries in sub-Saharan Africa, regional remittance inflows account for a large share of national income, setting the stage for a potentially high exposure to regional spillovers.
In 27 of the 45 sub-Saharan African countries, regional remittance inflows exceed interregional remittances. At the high end, Lesotho, Liberia, and Togo receive more than 5 percent of GDP in remittances from other sub-Saharan African countries.
Given that remittances have been shown to reduce macroeconomic fluctuations end poverty and foster financial development, regional remittance flows can help redistribute resources from fast-growing countries to slower-growing ones.
This factor was particularly helpful, for instance, in the case of resource-intensive countries hit by the commodity price shock Liberia, Mali, and Nigeria, with remittance inflows of 8, 4, and 2 percent of GDP, respectively.
Most remittance outflows from sub-Saharan African countries are sent to other countries in the region. Specifically, 31 out of 45 sub-Saharan countries send more remittances to the region than to the rest of the world, and three-quarters of total remittances from sub-Saharan African countries are sent to other countries in the region.
The four largest senders in 2015 accounted for 50 percent of total regional remittances. Remittances from Chad, Cameroon, Côte d’Ivoire, and Ghana to Nigeria alone account for 50 percent of received remittances in the region. Côte d’Ivoire and Ghana are also a large source of remittance flows to other West African countries.
The Note highlighted that the ongoing growth spell has translated into steady remittance flows to the region and has contributed to economic growth in the subregion. Remittance outflows from South Africa, the other large sender, are spread across the region, making the country of region wide importance.
In general, remittances in sub-Saharan Africa are exchanged among the largest, wealthiest, and closest economies, but on a net basis, they flow toward poorer and more connected countries, making them more exposed to spillovers.
By Zainab Iyamide Joaque
Monday August 06, 2018.

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