The African Business Review Jan-Feb 2014 | Page 24

Remittances have become an increasingly important source of
revenue for some 120 million recipients in African households. The
nature of remittances is different and complementary to other external
financial flows. The importance of remittances in consumption, thereby
reducing poverty, is widely recognised. Empirical evidence on the impact
of remittances on growth however, remains mixed. Policymakers cannot
do much to influence how remittances are spent, but by providing
adequate regulations and measures that lower the cost of remittance
services, they could improve domestic savings.

The importance of remittances in consumption,
thereby reducing poverty, is widely recognised.
Africa’s Haves and Have-nots

FDI and remittances to Africa have increased significantly over recent
years, yet they are unequally distributed across countries. The top fifteen
largest FDI recipients perceived roughly 75% of total greenfield FDI
in 2012. Between 2003 and 2012 only 15 African countries accounted
for 82% of a total of 5900 new FDI projects in Africa (fDi Markets,
2013). Those top FDI recipients were all natural resource-rich countries.

Since 2000 Northern Africa and Western Africa have accounted
for over 80% of total remittances to Africa. Their proximity to Europe
and their strong diaspora explain those figures. Two countries alone,
Nigeria and Egypt, represented 64% of total remittances to Africa
respectively USD 21 billion and USD 18 billion. Whereas the only
other countries recording over a billion USD of remittances were Sudan
(USD 1.4 billion), Kenya (USD 1.3 billion) and South Africa (USD
1.1 billion). (World Bank, 2013)

These positive developments contrast with the 29 African countries
out of 54 where aid inflows remain larger than FDI and remittances.
These African countries are either post-conflict, resource-poor, small,
landlocked or a combination of these characteristics. According to the
latest OECD Development Assistance Committee (DAC) figures,
nominal aid volumes to Africa increased from USD 47.9 billion in
2010 to a record USD 51.2 billion in 2011, equal to a real increase of
0.6%.

Though so far most African countries have been spared from
aid cuts, the outlook for aid remains uncertain. On the donor side it is
unlikely that fiscal pressures will wear off in the years to come. Strong
population growth combined with the likely stagnation of aid in the
near future is likely to lead to a further decrease of aid per capita.

In conclusion, the increased external financial flows reflect Africa’s
projected econo ZX