Essential Remittances To Africa Devastated By Coronavirus Pandemic
Friday, May 29, 2020
This is a rush transcript and may contain errors. It will be updated.
Kim Brown: Welcome to The Real News. I’m Kim Brown. As reports of the economic impact of the coronavirus pandemic continue to grow many African countries are witnessing the slowdown of remittances from guest workers in foreign countries. With seasonal workers unable to travel and guest workers already in host countries out of work, how can they, the workers, continue to send remittances upon which millions of families depend on to survive? Well, joining us to discuss this today is Professor Leonce Ndikumana. He teaches economics at the University of Massachusetts at Amherst. He’s also the Director of the African Development Policy Program at the Political Economy Research Institute and he’s also a member of the U.N. Committee on Development Policy. He co-authored the book Capital Flight From Africa: Causes, Effects, and Policy Issues. He joins us today from Amherst, Massachusetts. Professor, thank you so much for being here.
Leonce Ndimuman…: Thank you very much for the opportunity to join you.
Kim Brown: So professor in your opinion, in view of your research on capital flows to and from African countries, what is the likely impact of shrinking remittances on the financial health of the African region and individual countries as a whole?
Leonce Ndimuman…: Thank you very much. This is a great question. And as you said to give talks, give it context it is important to put this in the context of development financing, capital flows from and to African countries. What we have seen over the past decade is that African countries have been able to receive an increasing amount of foreign capital flows, including remittances, FDI, foreign direct investment and official government aid. In many countries remittances make a big proportion of the resources are coming from the rest of the world, which end up supplementing domestic resources and other forms of foreign capital flows. In some countries to give an idea in Egypt, for example, remittances amount to near almost 27 billion as estimated in 2018, the amount is about 24 billion in Nigeria, two to three billion in Kenya. But for some countries in relative terms, remittances make a big part of the resources in a big fraction of GDP.
So for example, for South Sudan, remittances are 34% of GDP. For Lesotho 21%. For Senegal, 10%. Now to understand what is likely to be the impact of the Coronavirus and the global economic crisis on remittances and on these economies it’s important to understand a couple of things about these economies. First of all, these are economies that depend on foreign exchange to afford their imports. Many of them are dependent on imports of critical commodities, critical imports, including food. Secondary, these economies are, have a large fraction of the population, which rely on the informal economy. So when the crisis hit and its national trade declined and movement on goods and people is curtailed there are people are not going to be able to survive because their income depends on informal activities that need to be done on a daily basis. So their income is a daily income. If they don’t go in the market, they don’t work, they don’t get income. If they don’t go to do their temporary jobs they don’t get an income. And in many families you have one person supporting a large number of children, of relatives and so on.
The other important feature is that the remittances make, it’s a big way or it’s a method of softening the shocks on household income. So when crops don’t grow, when people lose their jobs, migrant remittances are the source that are the resources that allow them to sustain their consumption, to keep, to send kids to school, to send people for medical treatment. So if we’re going to see a decline in remittances that has substantial impact on household consumption, on household healthcare services, on children being able to go to work, to school.
What we also see is that the sources of these remittances are quite concentrated mostly from Europe, the US and from other African countries. For example, countries like Zambia, Senegal, no Zambia, Lesotho, Zimbabwe have remittances coming from South Africa, which make a big chunk of their revenue or remittances revenue. So as the South African economy is weakening then we’re going to see people losing jobs. And this will translate into reduction in remittances. As we see European economies shrinking in terms of their growth rates, this is going to, it means people losing their jobs. It means that less income and less remittances.
We have also to underscore the fact that although there is a large fraction of African migrants who are highly educated, there is also a large, a substantial fraction who are low skill workers who depend on the kinds of jobs that have been severely hit by the vital crisis like in tourism industry, hotels, restaurants, transportation. We have many people from Africa who are in the transportation business as taxi drivers, Uber drivers. Those are suffering major losses in their income and they are the breadwinners in their households. And they are the supporters of their relatives who remained back home. So I think if this crisis is going to last this will have a major impact on African economies, on African households.
Kim Brown: So can this drop in foreign remittances possibly result in the collapse of exchange value of certain African currencies and possibly even result in hyperinflation?
Leonce Ndimuman…: One of the negative impact of a declining foreign capital inflows, whether it is remittances, FDI and aid is that the reserve of foreign exchange declines in the country, which means there is a less foreign exchange on the market, which means that the domestic currency is going to depreciate. It loses value, which means that people with fixed income are able to afford less with the same income. The goods that are going to be more expensive. And this is going to be magnified by the fact that the declining trade in international trade means that less goods are available on the domestic market because imports decline. And this is going to be able to make the cost of living increase for the majority of the households. We’re already hearing news about people seeing prices on the market increasing on a daily basis and this is going to continue, unfortunately.
Kim Brown: And lastly professor, we know Africa is an enormous continent. It is not a monolith. Each government in country operates individually. Which nations have a social safety net perhaps in place for its citizens given the fact that these remittances are dependent upon by so many? And now with the sudden drop in remittances because of the COVID-19 pandemic, are governments prepared to offset those economic losses to help people maintain and survive? Who does it best in your opinion?
Leonce Ndimuman…: That’s a very interesting question. I think to get a perspective of the challenges faced by government to support households, look at the US first. See how many households are suffering, who lost their jobs and who are left stranded. Even if we are talking about the country, the biggest economy, the biggest budget and so on and still we have, we are not able to support, the government is not able to support all the people who lost their jobs. In African governments, in African countries, I can’t see anyone, any country who has the resources to support the massive losses of income, of jobs, to support households. There is simply no fiscal space. As we said, the budgets are too small and many countries already entered in this crisis already with high budget deficits and revenue is going to decline if the crisis hit severely the continent.
We are still fortunate that in terms of number of confirmed cases, they are still low in majority of countries, granted that we don’t have the, many of them have limited the testing capacity. So the numbers may be a little bit off, but it is the case that if in the event African countries were to go to see an increase in the COVID cases this would dramatically affect employment in African countries. Many people would lose jobs. I don’t see an African government that’s prepared to support people through any significant fiscal intervention.
Kim Brown: All right, we’re going to have to leave the conversation there. We’ve been speaking with professor Leonce Ndikumana. He teaches economics at the University of Massachusetts at Amherst. We’ve been discussing the sudden drop in remittances that African nations have been receiving from foreign workers abroad working as guest workers, and many nations, many families depend on these remittances for daily survival. So professor, hopefully we’ll check in with you again and see if there has been any change or perhaps improvement in the situation. But we do appreciate your time today. Thanks a lot.
Leonce Ndimuman…: Thank you very much. And stay well.
Kim Brown: You do the same, sir. And thank you for watching The Real News Network.