In the Southern African Development Community (SADC), remittances are an essential source of income for households and a crucial source of foreign exchange for countries in the region. The remittance inflows account for a sizeable proportion of GDP and, after foreign direct investment (FDI). It is the largest source of foreign currency for countries in the region. Therefore, remittances can contribute to economic development and poverty reduction in SADC.
The global policymakers and development partners have undertaken several initiatives to reduce global remittance costs. The Committee on Payments and Market Infrastructures (CPMI) and the World Bank published the General Principles for International Remittance Services. The articles stated some guidelines on developing safe and efficient remittance services. In 2009, the G-8 established the “5x5objective,” an initiative to reduce the global average cost of remittances by five percentage points within five years. The G-20 confirmed the objective in 2014, and adopted a new goal to reduce the cost of remittances to 3 per cent in the 2030 United Nations Sustainable Development Goals.
Overview of SADC Region regarding Migration and Remittances
The SADC region has a long history of migration, with many SADC migrants choosing to settle in South Africa. Migration to and from SADC countries is driven by several factors, ranging from a lack of economic opportunities to political instability in home countries. South Africa hosts a sizeable number of migrants from other SADC countries, with SADC migrants comprising close to 50 percent of total migrants in South Africa.
According to the World Bank Bilateral Remittances Matrix, remittance outflows from South Africa amounted to US$2.4 billion, making it the largest outbound remittances market in SADC.
The Remittance Market of SADC
The cost of sending remittances to countries in SADC is significantly higher than in other regions in the world. The cost of sending a remittance is typically composed of a transfer fee (charged in the originating currency) and a foreign exchange rate margin. According to the World Bank Remittances Prices Worldwide (RPW) database, the total average cost of sending US$200 to SADC countries in 2018 was 12.64 percent. Despite the overall decline in the cost of remittances, the cost of sending remittances to the SADC region remains considerably higher than other regions in the world.
Factors Influencing Transfer Fees
The high cost of sending remittances to and within SADC is influenced by demand and supply-side factors. On the demand side, low levels of financial inclusion with limited financial education and consumer awareness have contributed to low usage of regulated remittance services. As a result, RSPs (remittance service providers) are unable to reach economies of scale. According to the research, remittance services are used by 33 percent of adults in SADC. Of these adults, 5 percent use bank channels, 20 percent use other formal channels (such as MTOs), and 8 percent reported using unregulated channels. Nevertheless, the
emergence of new digital MTOs serving the SADC market has begun to shift remittance flows toward regulated channels in recent years. However, the flow of remittances flowing through regulated channels in the region remains limited. Further stimulating demand and achieving scale for regulated remittance services will be crucial to reducing the cost of remittances in the SADC region.
On the supply side, several regulatory and infrastructure bottlenecks continue to constrain the growth and efficiency of the regulated remittances market. The legal and regulatory barriers in some markets in SADC are fairly onerous, impairing the efficiency and development of the remittances market in the region. For instance, in some countries, requirements that MTOs partner with a bank or other licensed financial institution to offer remittance services act as barriers to entry for new, low-cost RSPs.
Limited Competition in the Remittances Market
Competitive market conditions are essential to reduce the costs and improve the quality of remittance services. According to the General Principles for International Remittances (GP 4), a competitive remittance market is one in which monopolistic practices are limited, exclusivity conditions are absent, and RSPs have fair and equitable access to market and payment system infrastructure, whether direct or indirect. While in some corridors, the demand for remittance services may be insufficient to support multiple RSPs. Within SADC, recent regulatory interventions in South Africa and other countries have improved competition in the remittances market. However, in some markets, exclusivity conditions remain, and MTOs have limited access to the domestic and regional payment systems infrastructure.
Although the remittances market in SADC has been dominated by a small number of international MTOs, innovative, low-cost services are emerging in several SADC countries. Recent regulatory interventions in South Africa appear to be correlated with an increase in the number of MTOs operating in SADC. However, the impact on remittance costs is inconclusive.
With the ATL Money Transfer service, you can transfer money anywhere in Africa. We believe in transparency when it comes to exchange rates and transfer fees. We value your hard-earned money and so we have Our services include cash pick, instant mobile wallet delivery and many more.