‘Super tax’ on remittances to Africa hurts development -thinktank
16 April 2014
London (Thomson Reuters Foundation) – Africans face the highest remittance fees globally, regularly paying a “super tax” to send money home at a cost that hurts families and holds back development in the world’s poorest continent, a leading thinktank said on Wednesday.
The London-based Overseas Development Institute (ODI) said that 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.
The average cost to transfer $200 to sub-Saharan Africa was about 12 percent, compared with a global average of 7.8 percent, ODI said in its report, “Lost in intermediation”, branding the higher fees a “super tax”.
“This remittance super tax is diverting resources that families need to invest in education, health and a better future,” said the report’s co-author, Kevin Watkins. “It is 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,” Watkins said in a statement.
Weak competition, “exclusivity agreements” between money transfer operators, agents and banks, and flawed financial regulation contributed to pushing charges higher, ODI said.
The institute said two money transfer operators – Western Union and MoneyGram – accounted 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,” ODI said in the report.
Western Union said the average global revenue it earned from transferring money was 5-6 percent of the amount sent.
“However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies,” it said in a statement.
There was no fee for money transferred online from Britain for a cash payout in Africa when done through the sender’s bank account, it said.
Officials from MoneyGram were not immediately available for comment.
Remittances to Africa are rising.
In 2013, transfers to the continent were valued at $32 billion or around 2 percent of gross domestic product. In 2016, they are projected to rise to more than $41 billion, ODI said.
“With aid set to stagnate, remittances are set to emerge as an increasingly important source of external finance,” it said.
The ODI said there was no evidence of a fall in fees for Africa’s diaspora, even though governments from the G8 and G20 have pledged to reduce charges to 5 percent.
One of the many countries that are dependent on remittances is Somalia. Last year a threat by Barclays Bank to stop money transfer services to some 80 Somali remittance companies sparked an outcry with Somali-born Olympic gold medallist Mo Farah adding his voice to a campaign to keep the lifeline open.
For some, it is even more expensive to transfer money within Africa. For example, migrant workers from Mozambique pay charges as high as 20 percent to send savings back home from South Africa, the report said.
ODI called for several measures to lower Africa’s remittance “super tax” including an investigation of global money transfer operators by European Union and U.S. anti-trust bodies.
It also called for greater transparency over foreign exchange conversion rates and regulatory reform in Africa that would revoke “exclusivity agreements” between money transfer operators and banks and agents.
The use of micro-finance institutions and post offices as remittance pay-out agencies should also be promoted, ODI said.
Source: Thomson Reuters Foundation