Impact of COVID-19 on Personal Remittance Flow to Sub-Saharan Africa: Evidence from the MRU

By Aloysius Juwee Morris

Remittances are the bedrock or cushion (Kamara, BBC 2017) for smaller economies and the source of survival for many in poor countries as indicated by its resilience during previous global and regional crises such as the financial crises in the US in 2008 and the 2014 Ebola crisis in West Africa. Sub Saharan Africa which comprises 47 African countries is heavily dependent on remittances from migrant workers that have traveled to Europe and the Americas in search of employment the paper will draw evidence from the Mano River Union, a group of 4 countries that includes Sierra Leone, Guinea, Cote D’Ivoire and Liberia, the countries have been heavily dependent on remittances. This paper investigates the trend of remittances to the region since the outbreak of COVID-19. The paper seeks to establish whether there has been any effect (negative or positive) on the flow of remittances to these countries since the outbreak of the pandemic. This paper seeks to answer these questions and determine the impact that COVID-19 has had on the flow of remittances in the Sub Saharan Africa drawing evidence from the Mano River Union.

The resilience showed by remittances to selected Sub-Saharan Africa as a whole and the Mano River Union, in particular, is now under threat by a pandemic that the world has never seen in almost a century; the pandemic is at a global scale and its trickledown effect has been so catastrophic. This paper investigates the impact this pandemic has had on the flow of personal remittances to the region, evidence from the Mano River Union.

According to the International Organization on Migration, migration from Sub-Saharan Africa intra-regional has increased by 2.5 million since 2015 and inter-regional has increased by 2 million since the same period (Emmanuel Paul, 2020)

The outbreak of COVID-19 has affected almost every sector. Least developed or poor countries are the major victims. Given the spread of the virus to every nation, sources of support to poor countries have dried up. While donors and developed nations look toward a global victory against this pandemic, the focus has been a little homegrown.

In almost every country, the lockdown has been introduced thus cutting down on employment. In developed nations, the state has provided a stimulus package as a means of compensating for the job loss during this period. In underdeveloped countries, the citizens are left with no hope, as the few who are employed have to go through some form of revenue loss. During turbulent times in these underdeveloped economies, the citizens turned towards their relatives and friends in the diaspora for survival. For instance, remittances to the MRU spiked during the Ebola epidemic. That figure declined in the post-Ebola years as the economy opened up.

In 2013, World Bank statistics on Liberia recorded a total of $413Million in remittances as compared to $512, $654, and $580 (all in Millions) during 2014, 2015, and 2016 respectively, the period of the Ebola epidemic. Immediately following the epidemic in 2017, remittance dropped to $403Millions. The remittance for 2015 during the height of the Ebola crisis was $19Million more than the country’s 2014/2015 fiscal budget of $635Millions (Ministry of Finance, Liberia). It has been 4 months since the Mano River reported her first COVID-19 case. Since that period, the total amount that has been remitted to Liberia is lower proportionally compared to the Ebola period.

General Look at Remittance

Remittance according to several pieces of literature is a significant source of income for families and serves as a means of sustenance in difficult times. Remittances have also been classified as a more sustainable source of foreign currency than foreign direct investment, or official development assistance for developing countries. Remittance increases recipients’ incomes, boosts their investments in health, education, assets and personal development. In developing nations, remittance fills the gap for the huge unemployment rate.

Remittances contribute to the circular flow of money in smaller economies. The banking sector, through which most of these remittances flow, is kept afloat because of these transactions. In almost every developing country, the daily banking customers are recipients of remittances. These recipients are the ones who control the daily economic interactions.

Amidst these positive attributes, there are some shortcomings associated with remittance. For example, remitters are placed under pressure to remit whenever the need for funds arise, and a culture of dependency is developed whereby recipients are not encouraged to work. In addition, remittance contributes to an inequality gap between recipients and non-recipients. These shortcomings are factors that take away from the economy in as much as there are advantages of remittance that contribute to economic growth.

There has been a longstanding debate as to the impact of remittance. A European Union policy paper titled “The Impacts of Remittances on developing Countries” contributes to this debate by concluding that remittances might seem to increase the credit-worthiness of a country and deepen the local financial market, but they may also promote the loss of national competitiveness and increase the risk of government corruption by recipients in developing countries. The paper goes on to argue that at a transnational level, there is a similarly complex reality regarding the impacts of remittances citing that, remittances could finance either migrant–diaspora entrepreneurship or criminal diaspora organizations, which are two opposite potential results.

Remittance and COVID

As the world over grapples with the impact of the COVID 19, public health, the transport sector, the economy, and development finance, have had their share of the bottom hit of the process. sectors such as tourism, hospitality, construction, and manufacturing that employ most migrants are struggling to survive the economic impact of the lockdown measures taken by governments to prevent the spread of the COVID-19 pandemic (WEF 2020).

The mobility restrictions are impacting households and businesses in both remittance-sending and receiving countries (Amanda Bisong, Pamela Eunice Ahairwe, and Esther Njoroge Discussion Paper No. 269; The Impact of Covid19 on remittances for Development in Africa). Most immigrants travel to Europe and North America in search of better job opportunities as Canada, the UK, and the US double to process the biggest source of employment to immigrants from sub-Saharan Africa. According to Ratha (Ratha et al 2019, WB 2020c), these countries are the main sources of remittances to low and middle-income countries and because the countries are amongst the hardest hit by the pandemic, financial and development institutions predict gloom after the pandemic.

In order to control the spread of the pandemic, many national governments across the globe mobilized different measures which included but not limited to policies of lockdown; these policies have led to the closure of businesses and industries, that has left a large majority of the already lowly paid immigrants permanently unemployed (Reed and England, 2020). Remittances have proven over time to be the largest source of foreign financial flows into the region; (USD 82.8 billion in 2018, compared with USD 55.1 billion in ODA). That is according to the World Bank They represented as much as 5% of GDP in 13 countries. Egypt and Nigeria make up 60% of total remittances flowing to the continent. In addition, remittances tend to be far more stable as a source of revenue than other external financial flows having almost consistently increased since 2000.

However, the economic recession and confinement measures preventing senders from working and earning money could reduce remittances inflows coming from the African diaspora in the coming months. World Bank estimates that remittance flows to Sub-Saharan Africa will decrease by 23% in 2020, compared to 20% globally (World Bank, 2020). It is also estimated that the COVID-19 pandemic will lead to about 35% of migrants sending less than 5% of their previous remittance volumes (Orozco, 2020).

Global Remittance flow Pre-COVID

The remittance, the transfer of funds by foreign workers to their home country (Al-Assaf, Ghazi, and Al-Malki, Abdullah M., 2014), is one of the highest inflows to developing countries. Remittance, according to the World Bank, runs parallel with international aid. Countries with a huge presence of nationals working in foreign countries are the highest recipients of remittances. In 2018, remittance globally stood at a staggering $689Billion with developing countries receiving 76.6% ($528Billion). Comparing this to the 2017 remittance flow, it is a 10% increase (Economic Times, December 9, 2018). According to the World Bank, 2019 saw a growth in global remittance by 3.7%.

As per the statistics, remittances had steadily grown from year to year. However, the flow of remittances has been based on the global economic trend. Whenever there is an economic fault globally, the flow of remittance reduces, and when there is a global economic boom, the flow of remittance increases. In addition, it must be noted that the economic stability of developed nations is a serious factor in remittance flow. For example, the remittance flow from the US has been steadily increasing for the past half-century with the exception of 2008 when the global financial crisis struck (World Bank, 2017). According to a report by the International Fund for Agricultural Development, Europe accounts for 25% of global remittance flows with six countries contributing 75% of the flow. These countries are Russia, United Kingdom, Germany, France, Italy and Spain. By these statistics, it is evident that global remittance flow is hinged on the economy of wealthy nations thus rendering accurate the saying that when the West sneezes, the world catches a cold.

Global remittance flow during COVID-19

In 2019, the flow of remittance to developing countries galloped from $528Billion in 2018 to a record of $554Billion. Taking stock of remittance flow since the turn of the year, the World Bank projects that remittance flow will slump by 19.7%. This decline, which is because of COVID-19, will be one of the sharpest in recent history. Sub-Saharan Africa is expected to embrace a 23.1% decline in remittance flow because of the pandemic.

The fall in remittance flow during the pandemic and the overall projected fall for 2020 is due to the overall negative impact of COVID on the economy, cut in wages of migrant workers, and cut in jobs. In the US, the federal government has legislated two separate stimuli packages as a means of compensating for job loss, wage cut and the downward turn of the economy. Similar measures are being put in place across Western Europe. Developed countries whose economies have been the major source of remittances are performing poorly thus incapacitating them to live up to the demand. In these countries, many have turned to the social welfare program for survival.

Remittance flow to Sub-Saharan Africa

Remittance flow to Sub-Saharan Africa has been one of the highest. The remittance flow to these countries is based on the appalling economic situation vis-à-vis migration for greener pasture. Most of the countries in SSA have experienced civil upheaval, which have left them in tartars and down the economic ladder. There have been some attempts at recovery but these attempts have been faced with stiff challenges from bad governance, corruption, political instability, the Ebola outbreak and now the COVID-19 Pandemic. In 2018, Liberia was the tenth highest recipient of remittance in Africa and in 2019, the country had remittance forming 9.4% share of its GDP (World Bank).

In the region, Cote d’Ivoire received the highest remittance in 2019 amounting to $338Million, which represented 0.8% share of its GDP. In Guinea, the percentage share of GDP was 0.2 with a total remittance of $28Million. Sierra Leone and Liberia had $62Million and $301Million respectively in remittance during 2019. The figure below shows the inflow of remittance to the region between 2016 and 2019.

The above chart shows far less flow of personal remittances to Sierra Leone and Guinea due to the fact that migrants of the two countries send more remittances home through investment, while migrants from Liberia and Cote d’Ivoire send home more remittances for subsistence.

This pie Chart below shows the remittance flow to the Mano River Union as a percent of GDP for the four Countries Liberia being the highest.

Overall Impact of COVID

It is no secret that COVID 19 had had its toll on everything. Social lives have been shut down, economies ruined and lives lost. There has been no sacred cows in the devastation of COVID. The poor and the rich have been equally affected; and with the previous inequalities, the situation has gotten worse. Millions have lost their jobs while millions go to bed hungry. Street peddling, one of the major sources of survival in the Mano River Region has been hit hard due to several restrictions and regulations imposed.

Schools have been shut down and kids are being left to the tutorship of their parents; woe unto kids with illiterate parents. With poor IT infrastructure in the region, many sectors are currently non-functional. Unlike other developed countries with better IT infrastructure, working from home is practically impossible in the region. By the domino effect, it means that the overall development drive of these countries have been slowed to a significant extent. The democratic sphere has not been spared neither. Rights are being curtailed and constitutional provisions risked being violated.

The region currently has recorded a total infection of 18,122 with 202 deaths as per the Johns Hopkins July 4, 2020 statistics. The health facilities are overwhelmed as much as health workers are. The health sector in the region, which has not been outstanding prior to the pandemic, is crumbling. According to a Reuters 2020 report, the region has 370 intensive care beds. A statistics that speaks doom compare to the WHO prediction of 14% of COVID patients requiring hospitalization and oxygen support. Worst of all, the region boasts of 119 ventilators far short of the 4,500 pieces needed during the peak of the pandemic (Imperial College London). As evident by these data, the health sector has been overwhelmed by the pandemic.

The banking sector has also been drastically affected. Given the lockdown measures imposed, banking hours, across the regions, has been reduced. Noting that almost all of the region’s financial transactions are in hard currencies, a reduction in banking hours speaks of the extent to which the banking sector has been impacted. Small business owners with loans at the various banks are forced to default on payment, as their businesses are either closed or operating at a very slow pace now. Governments are negotiating with the various commercial banks on a way to handling these loans crises to lessen the economic difficulties in the various countries.

The European Labor markets has also had its fair share. The International Labour Organization (ILO) puts the total full time job loss for 2020 at 12million. The EU has also put in place a scheme that intends to support or mitigate unemployment risks. It is also a reality that the EU labour market is flooded with migrant workers.

Judging from the job loss and economic downturn being experienced and predicted in Europe and the US and the flow of remittance to MRU countries, the impact of COVID on remittance to the region is massive. Remittance flow is expected to remain low even post COVID if the Forbes Magazine prediction of 42% of the US job loss will be permanent.

Aside from overseas or international remittance, the region’s internal share of remittance flow has dropped due to reduced trade. Transactions within the region or countries of the region have mainly emanated from small business holders who sent support to their relatives and loved ones in other parts of the region. With these small business holders struggling to maintain their balance, the internal flow of remittance has been affected.

However, COVID has given another twist to the remittance flow. With the huge job losses and cessation of economic activities, the trend of remittance has shifted a little. As oppose to the regular interaction of individual migrants sending personal funds to their family members and loved ones, remittances are now being sent by organizations and groups made out of migrants and non-migrants. These finances are also directed for communal efforts as opposed to the individual initiatives. For example, in Liberia, thousands of homeless and jobless are fed daily through the support of groups, organizations and some individuals residing in the diaspora. COVID has not just reduced the flow of remittance to the region; it has also alter the source and purpose.

Impact of COVID on Remittance in the MRU

COVID has hit hard leaving no stone unturned, including remittance. Sending countries are experiencing economic hardship that has made it difficult for migrant workers to survive least to mention continue sending money back home. Jobs have been cut and wages sliced. Stimulus packages and unemployment benefits have become the new normal for many.

According to the Centre for Infectious Disease Research and Policy, the US lost 20.6 million jobs between mid-March and end-May, resulting in an unemployment rate of 14.7%, a level not seen since the Great Depression in the 1930s. It is noteworthy that migrant workers form a huge percentage of the industries affected by this loss. With the US, one of the highest sending countries recording such huge job loss, it means that significant number of migrants do not have the means to earn and send remittance back home. Per a report from the Migration Policy Institute, migrants are far more at risk in this pandemic. The Institute states that migrants are key component of frontline workers (hospitals, health facilities, et al) as well as industries hardest hit by job loss (domestic services, food industries, et al). That is to say, they are among the most affected by the virus and job loss. The report also noted that most of them are not covered by the US Congress relief packages.

According to the World Bank report (WB 2020f), the highest remittances receiving nations in Sub Saharan Africa are Nigeria Ghana and Kenya. Any reduction in volume of remittances to those countries and other low-income countries will have welfare implications on low-income households that are dependent on these inflows for consumption and investment in small businesses. In the Mano River region, COVID-19 has caused a marked reduction in the flow of personal remittances because the entire economy of the region is in virtual stagnation and development agencies are predicting an economic recession. The prediction is partly based on the fact that citizens and households from these countries depend heavily on remittance flow to the region for consumption, investment in businesses and the construction of infrastructures.

A simple linear regression is used to predict the impact that COVID-19 could have on the inflow of remittances to the region. Using Panel Data analysis for 47 countries over a period of five years from 2016 to 2020 in Sub Saharan Africa and taking remittances as the dependent variable, we take into consideration the independent variables: percent of GDP, income per capita, household income and effect on current account balance, holding all other disturbances constant.

When computed, the per capita income on the Stata regression is predicted to -1372.943, indicating that personal remittance inflow is expected to decrease and is expected to cause a proportionate reduction in the GDP per capita of Sub Saharan Africa as a whole and the Mano River Union in particular.

Conclusion

There is now sufficient evidence that COVID-19 will have a damaging economic impact on the global economy. Factories will slow down due to negative demand shocks, and markets will be hampered due to supply shocks. Unemployment and inflation, which are the twin evil of macroeconomics, will skyrocket. According to relevant economic statistics organizations and various world development indicators, gloom is predicted for the world economy which will see a significant percentage of the world population plunge into poverty.

All of these gloomy pictures will be furthered by a slowdown in the inflow of personal remittances globally, the Sub-Saharan Africa region and the Mano River Union. Remittance flow to the region is expected to decline significantly during the aftermath of this pandemic owing to the fact that most of the immigrants in the top destinations in Europe have lost their employments, either temporarily or permanently, due to the slowdown in productivity.

As indicated supra, personal remittances to the region constitutes large percentage point of the region’s GDP so a decline in the flow of said amounts would lead to either slow growth or no growth in GDP.

In order to offset the impact of this economic slowdown, national governments and policy makers should put in place appropriate measures that will repel these shocks by investing in agriculture, encouraging the use of electronic transfers and reducing the transaction fees on the limited amounts of remittances into the region. They are also required to enact laws that will protect the investments of immigrant workers. These measures will help reduce the short and long term impact on the post COVID-19 impact on remittance flows.