More Formal Remittance Channels to Curb Losses – Addis Fortune

November 2, 2010

Financial experts and economists at the World Bank (WB) called for the creation of additional formal remittance flow channels to reduce the governments loss of income due to foreign exchange being transferred into the country through informal channels.

Although a lot of the remittances sent to Ethiopia flows through back channels, the amount received by 14pc of adults accounted for eight per cent of the gross domestic product (GDP), at current market prices, in 2008/09.

The amount received by this 14pc, that comprise people who are aged between 18 years and 65 years, amounted to 3.2 billion dollars a year, according to a survey which was conducted for the first time in Ethiopia by the WB. Each person received 600 dollars annually, which was sent to them five times a year, on average.

There are around 37 million adults in Ethiopia, according to the 2007 census.

Remittance flows represent a significant share of the national income and foreign currency earnings for Ethiopia, said Benjamin Musuku, WB Africa Region Payment System specialist, on Wednesday, October 27, 2010, at the Future of African Remittance Programme initiative held at the Sheraton Addis.

Globally, international remittances totalled 414 billion dollars in 2009, of which 316 billion dollars went to developing countries, involving around 192 million migrants or three per cent of the world population, according to a WB estimate.

Despite significant amounts of remittance flowing through formal channels, a great deal of money makes its way into Ethiopia through informal channels, according to the survey.

In order to touch this money, policy makers and remittance service providers should play an active and supportive role to increase the development impact of remittance by facilitating formal remittance flows, thereby reducing the cost of remittance transfers, according to Donald F. Terry, financial expert at the WB.

The cost of sending and receiving remittance in Ethiopia is higher than the rest of the world, which is around 10pc, a study conducted by Western Union revealed.

To lower the high transaction costs, the WB launched the Future African Remittance (FAR) programme, which intends to enhance competition and financial innovation in the Ethiopian remittance market, on Wednesday, October 27, 2010.

Under the FAR programme, the WB is expanding its efforts in Ethiopia to assist the government and remittance service providers to realise the development impact of remittances. The programme will act as a collaborative platform for enhancing and focusing complementary efforts on the issue of remittances.

The FAR programme will also facilitate the exchange of best practices among participating countries by creating a forum for technical discussion and examination of innovative technologies, regulatory developments, and improved data collection on remittance.

The programme sets a goal to reduce the cost of sending and receiving by five per cent and increase remittance through formal channels by 20pc in 2015.

Commercial Bank of Ethiopia (CBE), the state owned and biggest bank, plans to increase the remittance that is sent through it by 40 pc this year. To this end, it had stopped charging commission on Western Union transfers that are sent through its branches.

The result of the national survey and FAR programme was made public in the joint conference held by the WB and National Bank of Ethiopia (NBE) on October 27.

The conference, held in Addis Abeba, following a similar initiative in Kenya, intended to disseminate the survey results and launch country specific initiatives to improve competition and foster technological innovation, according to Benjamin.

The programme started in May 2010 with engagement in Ethiopia, Kenya, and Uganda and plans to expand to an additional five Sub-Saharan African countries in 2011, he said.

The conference brought together nearly 50 participants comprising policy and decision makers from Ministry of Finance and Economic Development (MoFED), NBE, commercial banks, and non-bank financial institutions.

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