Golden Age of Private Remittances

$31M TO $4.5BN IN 6YRS!

According to figures released by the Bank of Ghana, private inward transfers – from NGOs, religious groups, individuals etc – through the banks and finance companies for January-November 2005 amounted to $4.25bn, making it the largest source of foreign exchange.

This represented a 60.1 percent increase over the corresponding period in 2004, which were in turn 36.7 percent increase over the same period in 2003. Most significantly, last year's private remittances represent more than 40 percent of Ghana's gross domestic product last year, estimated to be around $10.6 billion.

Equally significant is a report from the Institute of Statistical, Social & Economic Research, which sources the central bank and puts the amount of private remittances at $31 million a little over five years ago.

Of the total transfers from January to November 2005, the central bank estimates that $1.27 billion (30 percent) represented remittances from individuals. That is more than Ghana received in foreign aid last year, and slightly smaller than the $1.5 billion promised by our donor partners this year. Furthermore, money transferred to Ghana from individuals alone was more than half of Ghana's total export earnings of $2.73 billion. It was more than the country earned from gold ($945.8m); more than cocoa earnings ($843.2m); and certainly more than our export earnings from the fast-rising non-traditional exports ($829.5m).

What the total private remittances figure of over $4.25 billion for last year indicates is a phenomenal economic sector which the country has not formally given that much of a policy thought to in our quest to develop.

The December 2004 report by Peter Quartey and Theresa Blankson (Do Migrant Remittances Minimise the impact of Macro-volatility on the Poor in Ghana?) stated: “Available data from the Bank of Ghana shows that the amount of remittances to Ghana exceeds [Overseas Development Aid] and it is therefore of critical concern… considering its growth rate in recent years in particular. The value of remittances increased from $31 million in 1999 to $1.4 billion in 2002.”

A report on Ghana by Fitch Ratings released this month suggests that part of the explanation for the rapid growth of remittances may be technical - better data coverage and reporting by banks. “But,” it stresses, “there is no denying the impact, too, of greater macroeconomic stability and a growing diaspora of 3m…”

While the BoG's provisional figures for last year excluded the bumper month of December, a conservative estimate should push the total money transferred into the country from official channels for private use to at least $4.5 billion. The officially recorded figures are considered lower than the actuals as many migrants use informal mechanisms to send money home. In 2004, the BoG produced a report on the macroeconomic impact of remittances that showed that the increase in remittances is equivalent to a rise in the GDP share of remittances, from 3.3 percent in 1990 to 11 percent in 2002, and about 13.3 percent for 2003. This went up to 15 percent in 2004. But, last year's figure of about 42 percent must be, at least, among the global highest.

Money sent home by immigrants is increasingly a part of the global economy. The San Francisco Chronicle reported (24/6/01) that immigrants in the US sent $23bn abroad in 2000. By 2003, the figure had become $30bn. In some Central American nations, remittances are more than 10 percent of national GDP – 29 percent in Nicaragua and 15 percent in El Salvador. It is estimated that remittances have risen to more than $100bn worldwide every year, an amount greater than total government aid to developing countries. The US Department of Treasury estimated that remittances to developing countries totaled more than $90bn in 2003. A country study on Ghana last year by Adam Higazi of Oxford University indicates that informal remittances constitute a large proportion of total migrant remittances to Ghana, even though it is not possible to be sure of their exact size in the absence of detailed survey data.

The principal source of remittances to Ghana is North America (the United States and Canada), followed by the United Kingdom.

An estimated three million Ghanaians (15% of the population), compared to a home-based population of around 20 million, are based abroad with the majority of them concentrated in the three western countries above, plus Germany, the Netherlands and Italy.

The Wall Street Journal (2/5/01) did a case study on how remittances had transformed Pozorrubio, Philippines, a town of 60,000. One in 10 people works overseas, from Hong Kong to Los Angeles and New York. Pozorrubio's main street is bustling with new stores and businesses, including a video rental shop and three karaoke clubs. A local banker complains of having too much money and not enough borrowers.

The Wall Street Journal was not altogether positive about the effect of remittances. It cited a study in Mexico showing that about half of the money is used for daily living expenses and consumer goods, with only about 10 percent invested or saved.

Yofi Grant, a director of Databank Financial Services, has urged government to prioritise the money transfer sector and formulate policies to turn it into tangible capital pool to boost the economy. He also admits the financial service providers must also be proactive in turning this huge source of inflows into capital.