A new research report by People Against Suffering, Oppression and Poverty (Passop), Strangling the Lifeline An analysis of remittance flows from South Africa to Zimbabwe, has shown almost $850 million was remitted to the country last year.
The report, based on interviews with 350 Zimbabwean migrants found that 91% of the migrants in South Africa send money home regularly and the average amount sent was almost a third of their monthly income.
Taking into account that an estimated 1,5-2 million Zimbabweans have emigrated to South Africa over the past decade, the report estimates that R5,1-6,8 billion ($700-850 million) were remitted in 2011, making remittances one of the most important sources of foreign currency inflows for Zimbabwe.
Remittances are relied on to sustain the livelihoods of up to two-thirds of Zimbabwes remaining population, Passop said.
The report said three-quarters of migrants preferred using informal channels (bus drivers, friends, etc) to remit money, rather than formal channels (banks or money transfer operators such as MoneyGram or Western Union), despite the lack of reliability and inefficiency of informal channels.
Perhaps the most surprising finding detailed in the report is despite the proximity of Zimbabwe, and despite the large market that exists for remittances, the cost of sending remittances from South Africa to Zimbabwe is amongst the highest in the world, the report said.
The average cost was found to be 12-15% of the amount remitted the costs in comparable corridors, such as Mexico-US are much lower, at 3-5%. The implication of this is that the amount of money that actually reaches families in Zimbabwe, and hence the impact it has on poverty reduction and development, is much lower than it could be.
If the development gains for Zimbabwe were to be maximised, then the formalisation of remittance flows should be fostered through the implementation of a number of key reforms.
The report cited recommendations to reduce inefficiencies, bring down costs and improve accessibility of formal channels, as well as facilitating flows and leveraging their development impact by providing the appropriate channels, financial education and effective incentives to migrants.
It said it was in the interest of South Africa to facilitate the formalisation of remittance flows to make them more transparent and to increase the liquidity and efficiency of the financial sector in that country.
Thus, remittances from South Africa to Zimbabwe represent a huge source of untapped potential for development on both sides of the border that is currently being mitigated by high transfer costs and impeded by stringent and inefficient regulations, Passop said.
If the formalisation of remittance flows is pursued comprehensively, remittances could realise their potential and play an invaluable role in the reconstruction of the Zimbabwean economy.