Remittances to attract more liquidity

Africa Moyo

THE Reserve Bank of Zimbabwe believes that the new dispensation allowing authorised dealers to remit cash outside the country will naturally encourage more inbound remittances, as studies have indicated that capital is likely to accrue in jurisdictions where it is allowed to move freely.

Monetary authorities have licenced 30 Authorised Dealers with Limited Authority (ADLA) that can remit money outside the country’s borders.

Foreign currency shortages in the decade leading to 2009 forced Government to restrict foreign currency outflows and money transfer agencies (MTAs) were limited to inbound remittances.

RBZ Deputy Governor Dr Khupukile Mlambo said, “In April we came up with a new process that allows what we call ADLA to also remit outside.

“You see, money is a funny thing; money will not come where it can’t get out.

“That is the thing we need to know, whether you are talking about controlling your capital account or mortgage and so on.

“At the central bank, we have realised that people in the Diaspora will not want to bring in their money if it can’t come out…

“So we have issued 30 licences to ADLA to allow them to receive and remit money. Of course these are amounts that are not huge, these are smaller amounts. So that is one way we are working on in terms of encouraging the Diaspora to remit money,” said Dr Mlambo.

The initiative is meant to improve confidence in the remittance market with a view to increasing Diaspora investment.

It is also expected to remove exclusivity agreements between MTAs, a development that is likely to encourage reduction of remittance fees by improving competition.

The current $6 charge to send $200 through mobile money platforms is considered too high by the apex bank.

Diaspora remittances from MTAs, NGOs, embassies and other international organisations account for 25 percent of liquidity on the local market, while export proceeds contribute 62 percent, loan proceeds six percent, foreign investment four percent and income receipts four percent.

Income receipts include investment income and royalties earned from offshore investments. According to Dr Mlambo, Diaspora remittances into the country contribute more than 10 percent of GDP, with around 50 percent of the remittances coming through the official channels.

Remittances recorded through official channels increased by 200 percent to US$837 million last year from US$301 million in 2009. Six source countries contributed about 77 percent of Diaspora remittances, with South Africa accounting for 33 percent, the United Kingdom 24 percent, the United States seven percent, Australia six percent, Botswana five percent, Canada two percent and 23 percent from another 80 countries.

Financial Express analyst Mr Respect Gwenzi said last week while the RBZ’s initiative was noble, it may not realise significant inflows into the economy since the funds are largely for consumptive purposes.

Mr Gwenzi said at US$837 million, last year’s remittances were more than double the country’s FDI.

“So the relationship that exists between remittances and the channels of remitting becomes equally important in this regard. The move is also triggered by a growing number of Zimbabweans seeking employment outside the country.

“A study has also shown that due to the high amounts involved, remittances to Africa are now being recognised as a major contributor to the countries’ development and growth.

“My view, however, is that we may not necessarily need as many channels to cater for these remittances, noting also that the remittances are highly consumptive as they are directed to individuals back home for current consumption and devoid of the multiplier effect that accompanies investment funds such as FDI, hence impacting marginally on the aggregate growth of the economy,” explained Mr Gwenzi.

Other initiatives designed to attract liquidity include the Homelink Concept, which was introduced by the RBZ in 2005 to mobilise foreign currency through catering for the investments and consumptive needs of Zimbabweans in the Diaspora.

The mandate was broadened in 2014 to encompass harnessing capital through Direct Diaspora Investments for economic development. World Bank data shows that Diaspora remittances are playing a critical role in economic and social development around the world. Total migrant remittances to developing countries were US$418 billion in 2013 and US$436 billion in 2014.

This year, they are forecast to grow to $440 billion.

However, remittances to Africa are small and increasing slowly (2,2 percent in 2014), with Nigeria accounting for about two-thirds of remittances.

Strong growth has been recorded in Kenya, South Africa and Uganda.