Cost of sending remittances from South Africa amongst highest in the world. Between 70-80 per cent of the ZAR 5.1-6.8 billion (US$ 680-900 million) estimated to have been remitted in 2011 was sent through informal channels.
These and other findings of a new PASSOP Report on remittances to be submitted to the South African Reserve Bank and the Department of International Development and Cooperation.
A new research report by PASSOP, "Strangling the Lifeline - An analysis of remittance flows from South Africa to Zimbabwe", has found that 91% of Zimbabwean migrants in South Africa send money home regularly (these transfers are called remittances).
The report, based on interviews with 350 Zimbabwean migrants - the largest sample size on the issue in the last five years - also found that the average amount remitted by migrants was almost a third of their monthly income.
Taking into account that an estimated 1.5 - 2 million Zimbabweans have emigrated to South Africa over the past decade, the report estimates that ZAR 5.1-6.8 billion ($700-850 million) were remitted in 2011, making remittances one of the most important sources of foreign currency inflows for Zimbabwe.
Remittances are relied on to sustain the livelihoods of up two-thirds of Zimbabwe's remaining population. South Africa's renewed practice of mass deportations is therefore a serious threat to the livelihoods of thousands of families in Zimbabwe who are dependent on remittances, the report goes on to argue.
Another interesting finding of the research report is that roughly three quarters of migrants prefer using informal channels (bus drivers, friends, etc.) to remit money, rather than formal channels (banks or money transfer operators such as MoneyGram or Westsern Union), despite the lack of reliability and inefficiency of informal channels.
These informal flows are unrecorded, and therefore the size of remittances flows has been hardly known and scarcely reported on in the past.
Perhaps the most surprising finding detailed in the report is that despite the proximity of Zimbabwe, and despite the large market that exists for remittances, the cost of sending remittances from South Africa to Zimbabwe is amongst the highest in the world.
The average cost was found to be 12-15% of the amount remitted - the costs in comparable corridors, such as Mexico-US are much lower, at 3-5%. The implication of this is that the amount of money that actually reaches families in Zimbabwe, and hence the impact it has on poverty reduction and development, is much lower than it could be.
If the development gains for Zimbabwe are to be maximised then the 'formalization of remittance flows' must be fostered through the implementation of a number of key reforms.
The report cites a list of recommendations to reduce inefficiencies, bring down costs and improve accessibility of formal channels, as well as facilitating flows and leveraging their development impact by providing the appropriate channels, financial education and effective incentives to migrants.
Perhaps contrary to initial impression, the report argues, it is in the interest of the South African government to facilitate the formalization of remittance flows. Rather than increasing the volume of flows, the effect would be to make flows more transparent and to increase the liquidity and efficiency of the financial sector in South Africa.
Thus, remittances from South Africa to Zimbabwe represent a huge source of untapped potential for development on both sides of the border that is currently being mitigated by high transfer costs and impeded by stringent and inefficient regulations.
If the formalization of remittance flows is pursued comprehensively, remittances could realise their potential and play an invaluable role in the reconstruction of the Zimbabwean economy.
This, in turn, is the only way to address the high currently high level of Zimbabwean migration to South Africa.
The full report will be published at a launch in Cape Town (Idasa House, 6 Spin Street) tomorrow, Wednesday April 11th at 11AM. The author of the report, David von Burgsdorff, will be joined on the panel by Professor Brian Raftopoulos and Mr. Braam Hanekom. Members of the media are invited to attend.
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