23/02/2021

For many developing countries, reduced remittances and less foreign-direct investment are a double whammy | D+C - Developme…

crises including locusts, droughts, oods, non-Covid pandemics and severe macroeconomic problems.
The main reason for the fall in remittances is the weak economies and resulting higher unemployment in
the host countries. For the rst time in recent history, the absolute number of international migrants is
likely to fall, as new labour migration slows, and many migrants return home. Additional reasons for the
fall in remittances are weak oil prices and depreciation of host country currencies against the US dollar.
All this is deepening the devastation in remittance-receiving countries. Most individual remittances are
small, in the range of a few hundred dollars. Yet without these payments, many families must cope
without basic necessities such as food, health care and education.

Moving the funds
Against this backdrop, it is particularly important to encourage remittances by making money transfers as
easy as possible. An important element of easing the process is lowering the fees that the migrant
workers pay to nancial intermediaries.
The UN’s Sustainable Development Goals (SDGs) set targets for reducing those fees, as well as for
increasing the overall volume of remittances sent. SDG indicator 10.c.1 sets a target of reducing the fees
charged by nancial intermediaries to three percent of the amount remitted by the year 2030.
In March 2020, in a call for a coordinated response to Covid-19, UN Secretary General Guterres went
further, saying those fees should be reduced to near zero. “Remittances are a lifeline in the developing
world – especially now,” he said in a video address. “Countries have already committed to reduce
remittance fees to three percent, much below the current average levels. The crisis requires us to go
further, getting as close to zero as possible.”
There is a long way to go to achieve this goal. According to the World Bank’s Remittance Prices Worldwide
Database, the average cost of sending $ 200 to LMICs was 6.8 % in the third quarter of 2020. That was still
more than twice the SDG target.
In some cases, the fees for moving money are as high as 11 %. Banks are the most expensive, with an
average charge of 10.9 % of the amount sent. Post o ces charge on average 8.6 %, followed by moneytransfer operators such as Western Union, which charge 5.8 %. Mobile operators, which provide transfers
electronically over mobile-phone networks, charge 2.8 %.
Geographically, the fees are lowest for sending money to South Asia, at around ve percent, while for SubSaharan Africa the average cost is close to nine percent. Fees for many funds transfers within Africa and
among Paci c Island nations are above ten percent.
In general, fees tend to be high for cash-to-cash transfers that many poor people rely on because they
lack access to banking services. Opening up access by money-transfer operators to partnerships with
national post o ces, national banks and telecommunications companies would boost competition in
remittance markets and lead to lower fees.
A further helpful measure would be to ensure that mobile money-service providers, which o er
convenience as well as lower-average costs to migrant workers, have easy access to opening
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