Investment bank DAI Magister said Africa’s remittance market, which is poised to reach $500 billion by 2035, makes it a prime investment opportunity.
Remittances comprise a significant portion of African GDP, with the total value of remittances across the continent reaching nearly $100 billion in 2022 − $20 billion of which was intra-African flows.
Despite the importance of remittances to the African economy, the cost of sending money to the continent remains very high. The UN Sustainable Development Goals state that remittance fees should be less than 3% by 2030, but data from the World Bank suggests that, at present, the global average is twice this target, with the figure as high as 20% in some parts of Sub-Saharan Africa.
According to Risana Zitha, managing director and head of Africa at DAI Magister, mobile money has emerged as a game-changer in tackling the challenge of high remittance costs in Africa. He expects increased mobile money interoperability, better financial literacy and streamlined legal frameworks to further drive down fees across the region.
“Looking ahead, the growth of remittances in Africa is expected to continue,” Zitha said. “Based on the CAGR of 12.1% between 2019 and 2022, the formal African remittance market, valued at $100 billion in 2022, could potentially reach $283 billion by 2035.
“The informal remittance market is estimated to be between 35% and 75% of the total value of formal channels, with Sub-Saharan Africa experiencing a higher proportion of informal transactions than the global average. As a result, the total continental remittance market could be worth $500 billion by 2035.
“To fully capitalize on the opportunities in the continent’s remittances sector, stakeholders must collaborate to address the challenges and barriers that hinder growth and development. Reducing remittance costs should be a primary focus, which can be achieved by promoting competition, improving regulatory frameworks and investing in financial infrastructure. This will allow remittance providers to offer more affordable services, benefiting both senders and recipients and contributing to economic growth and development.”
Zitha said improving access to digital remittance services is another crucial aspect. While mobile money has made significant strides on the continent, there is still room for expansion. Governments and private sector stakeholders should invest in digital infrastructure, such as mobile networks and internet connectivity, to ensure that more people can access digital remittance services. Promoting financial literacy and education can also help individuals understand and trust digital remittance channels, encouraging adoption and usage.
“The ability to harness remittance flows is particularly important at a time when the Sub-Saharan region is experiencing acute hard currency shortages. By addressing the challenges and barriers, and leveraging the opportunities presented by technology and innovation, Africa can harness the transformative power of remittances for sustainable development and economic growth,” Zitha concluded.