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The World Bank has issued a call to action for countries like Nigeria with significant diaspora populations. In a recent Migration and Development Brief, the Bank highlighted the potential of remittances to combat poverty and fuel economic growth.
This report comes as remittance flows are projected to decline slightly in 2024. Nigeria, despite missing its projected target, remains a leader in Sub-Saharan Africa with an inflow of $19.5 billion. However, the World Bank emphasizes that the raw numbers are less important than how these funds are utilized.
“This is not to suggest that remittances could substitute for FDI or ODA. Developing countries need FDI, especially in critical infrastructure and green investments.
“They also need ODA to address public financing needs and externalities such as fragility and climate change. Instead, countries need to take note of the size and resilience of remittances and find ways to leverage these flows for poverty reduction, financing health and education, financial inclusion of households, and improving access to capital markets for state and non-state enterprises,” the report said.
The report added that the fees charged to senders (and sometimes recipients) were often masked by nontransparent foreign exchange markups.
“In many countries with multiple exchange rates, remittances tend to flow through unregulated channels. In such cases, the foreign currency may not even flow across borders, thus, depriving the recipient country access to foreign exchange,” the report said.
The report urges recipient countries to develop strategies that maximize the impact of remittances on poverty reduction. Here are some key points:
- Financial Inclusion: Many remittance recipients lack access to formal financial institutions. Encouraging mobile banking and other inclusive financial services can help families better manage and invest their remittance income.
- Investment Opportunities: Diaspora communities often have entrepreneurial spirit and access to capital. The report suggests fostering channels for diaspora investment in areas like infrastructure and small businesses, creating a multiplier effect that benefits local economies beyond just individual households.
- Reducing Remittance Costs: The World Bank highlights the high cost of sending remittances, particularly in Sub-Saharan Africa, where the average fee sits around 7.9%. Regulatory reforms and promoting competition among remittance service providers could significantly increase the amount of money reaching families.
While acknowledging the positive impact of remittances, the report also cautions against over-reliance. It emphasizes the need for broader development strategies that address the root causes of poverty, such as creating jobs and improving access to education and healthcare.
The World Bank’s message is clear: remittances can be a powerful tool, but recipient countries need to be proactive in maximizing their impact. Whether Nigeria and other countries can heed this call and translate remittances into lasting poverty reduction remains to be seen.
Tags: World Bank, Nigeria, Remittances, Education, Healthcare, Sub-Saharan Africa, FDI, Financial Inclusion, Poverty Reduction.
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