Africa ranks third in terms of amounts received from its diaspora, behind Asia-Pacific and Latin America. More than ever, it is important to galvanize transfers for an even greater impact.
According to the African Institute of Remittances (AIR), remittances from the African diaspora reached $ 65 billion in 2017, more than doubling Africa’s official development assistance to donors, which was 29 billion. This is an increase of 36% in less than ten years, according to the International Fund for Agricultural Development (FIDA).
The continent ranks third in terms of amounts received, behind Asia Pacific and Latin America. Two-thirds of the funds mobilized by the diaspora serve first of all as a social safety net and meet the financing needs of everyday life.
If these resources respond to real problems of everyday life, they do not inspire very little formal circuits of wealth creation: SMEs, development projects or infrastructures. How to capture this financial windfall in favor of financing savings? What opportunities in terms of vehicles and financial tools that can capture the resources of the diaspora?
Anticipate new ways of transferring money
Western Union and MoneyGram account for two thirds of the money transfer points on the continent, a dominant position that can account for commissions: between 10 and 15% of the amount sent, against a global average of 7.8%. Rates that “lose” every year to the continent nearly 1.6 billion euros, enough to finance education in 14 million primary schools, according to the NGO Overseas Development Institute (ODI). The World Bank in its Sustainable Development Goals (SDGs) as well as the G8 have repeatedly expressed their desire to reduce these commissions to 5%, but, for lack of incentives or coercion, they have not been listened to.
Like Orange, which opened its first Orange Money boutique in Paris in June 2018, giving access to fourteen African countries, other economic players have decided to innovate to compete with the historical leaders of the continent. money transfer. Likewise, on the fintech side, there are many value propositions. Among them, WorldRemit, created in Somalia, carries out 300,000 transactions per month for an average amount of 90 million euros. This system dispenses with physical points since the transactions are managed online, allowing commissions around 5%. Other examples include Beam in Ghana and Bitpesa in Senegal, which use bitcoins to reduce commission fees to 3%. Finally, the neo-bank Revolut offers to send a MasterCard to a loved one, then feed it from a distance. All of these services are free of charge and the exchange rates applied are those of the market.
Other actions, which could be replicated on the continent, emerge in Asia and the United States. As WeChat, the first social network in China (600 million users) that launched its money transfer system. In the United States, Facebook and Snapchat have both opened their money transfer service. On a continent where mobile has become a powerful tool for inclusion, the sending and receiving of funds over the phone is definitely the future: when will a transfer service via WhatsApp, for example?
Take advantage of hoarded savings
In addition to the funds sent, there is a second market, that of unsent savings. To transform it into an asset mobilized for the continent, companies like the States seek to offer products or services carrying yield. This win-win strategy would, ultimately, boost the creation of wealth and jobs in Africa. The capacity of private and public operators to promote the meeting of adapted financial tools and structured projects is one of the main levers for capturing savings from the diaspora.
Thus, new services are developing, particularly in insurance (repatriation of bodies, funeral capital, securing pensions) or real estate. Various operators are positioning themselves, from Axa to fintech.
In Morocco, the real estate sector represents more than 40% of investments, compared to 14% for the productive sector. It is therefore not surprising that mortgage loans are considered by the Moroccan diaspora as the first “safe” retirement savings product.
Securing investments with fintech initiatives
Donors tend to favor start-up financing as an accelerator of development, in the same way that private operators like Orange rely on local incubators to stay at the forefront of the continent’s developments. Capitalizing on operators and formalized vehicles can be particularly relevant for actors experiencing difficulties to undertake in Africa (logistical complexities, lack of trust in local partners …).
The diaspora itself can offer solutions to secure investments on the continent. Among the success stories in this area is FiftyFor, a business rating platform, which addresses the lack of trust in informal partners with an algorithm to score without financial balance sheets through stock history valuation. Data is captured at the mobile payment application level and transactions are evaluated. The track record thus reconstituted makes it possible to know the customer and to elaborate his rating. Other initiatives to build a climate of trust: Afrikwity, equity crowdfunding platform, which guarantees a secure investment in African start-ups and SMEs.
Attract funds through state initiatives
Sovereign debt instruments, including the issuance of diaspora bonds, are among the relevant institutional initiatives to mobilize diaspora savings. For the states, these bonds represent an alternative source of financing for loans on the international market or from the Bretton Woods institutions. For the diaspora, they constitute a safe investment, guaranteed return, as well as the opportunity to contribute to the financing of structuring projects for the development of the country of origin. Since the 2000s, only five countries, mainly in English-speaking Africa, have issued diaspora bonds: Ethiopia, Ghana, Kenya, Nigeria and Rwanda. In 2017, Nigeria successfully issued its first vouchers: $ 300 million dedicated to infrastructure projects.
Ultimately, African diasporas are creators of values in the north as in the south. The challenge for African states lies in their ability to propose appropriate devices. It seems sensible to opt for a hybrid approach. This approach would be based on two foundations:
– combine private (fintech, telecom operators …) and public (fundraising) initiatives;
– capitalize on business verticals by structuring financial vehicles specific to sectors considered as priority for development (example: diaspora fund dedicated to education or energy, turnkey products for access to real estate property ).
But beyond the state initiatives, the diaspora has an interest in turning this challenge into a business opportunity by creating the tools to inject capital into African economies.
Le Point Afrique