Remittance income drives Africa's economic growth - Report

A report launched by the Institute of Chartered Accountants in England and Wales (ICAEW) has said that despite an economic slowdown, most African countries are having a positive economic outlook.

This is according to a new report, "In Economic Insight: Africa Q3 2018," launched Wednesday, the accountancy body provides GDP growth forecasts for various regions including East Africa, which is forecast at 6,3 percent, West and Central Africa as 2,9 percent, Franc Zone at 4,6 percent, Northern Africa at 1,8 percent and Southern Africa at 1.5 percent.

The report highlights remittances as a key economic driver for most African countries with Nigeria recording the highest amount of $22 billion in 2017. Remittance income was emphasised in the report as a major economic factor for most African countries. Nigeria was the biggest receiver of remittances on the continent.

The West African economic powerhouse received 29 percent ($22 billion) of total remittances flowing to the continent in 2017, mostly from the Gulf, the US and United Kingdom.

Egypt was the second biggest receiver of remittances on the continent with $20 billion of remittances. One of the countries highlighted where remittance flows continues to play an important role in terms of external accounts is Ghana.

According to the World Bank, remittance inflows amounted to $2,5 billion in 2014: equal to roughly 18,6 percent of total exports that year. However, in 2017 the remittance inflows subsequently declined to $2,2 billion equivalent to 15,8 percent of exports.

The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the region's economic performance. The regions include; East Africa, West, and Central Africa, Franc Zone, Northern Africa, Southern Africa.

Last year, diaspora remittances were Kenya's highest foreign exchange earner, overtaking tea, coffee, and tourism. Remittances contribute to financial services expansion and drive the growth of financial inclusion.

The recent entry of global payment and remittance firms into the East African market has eliminated significant barriers that have hindered consumers and businesses in the region from taking full advantage of remittances.

Ethiopia remains the region's powerhouse, with growth forecast at 8,1 percent, thanks to the recent reforms under new Prime Minister, Abiy Ahmed.

In Central and West Africa, growth is forecast at 2,9 percent. The constrained growth in the region is due to subdued non-oil economic activity by Nigeria –— the region's powerhouse. Ghana, by contrast, is the best-performing country in the region with a forecast growth of 6,5 percent.

"Despite the recent growth slump; all regions in Africa are projected to report a positive economic outlook, with remittance income expected to be a key economic booster in the coming months."

Michael Armstrong, Regional Director, ICAEW Middle East, Africa, and South Asia said. Growth in the franc zone is forecast at 4,6 percent, largely driven by a boost of 7,4 percent in the region's biggest economy, Ivory Coast, where investment is driving rapid expansion.

North Africa's Egypt is forecast at 5,3 percent, as a result of structural and policy reforms, which have boosted manufacturing and investment.

The county's tourism sector has also continued to recover. Likewise, Libya is expected to record a growth of 16,5 percent, owing to posted improvements in oil production after the civil conflict.

Southern Africa has been affected by continued slow growth by regional heavyweight South Africa, forecast at 1,5 percent. Angola, the region's other economic leader, has the same forecast of 1,5 percent.

Strong growth in both Botswana and Zambia is said to have little effect on the region's overall performance. Uganda's economic growth was reported to have recovered markedly last year.

The country is expected to post a surplus of about 5,6 percent of GDP this year, supported by project aid and remittances inflows. The report notes that despite remittances playing an important role in African economies, policies should focus on reducing the cost of remitting funds.

Ghana remittances and exports Assuming emigrant population proportions in their respective destination countries remain constant at 2017 levels, emigration to these destinations grows at the same rate as the 20-35-year-old population in Ghana and considering host country GDP per capita growth forecasts - indicate that Ghana's remittance inflows will rise to just below $2,8 billion by 2020.

Remittances' ratio to total exports, meanwhile, will decline to 15,2 percent as Ghana's exports rise sharply over the forecast period, driven mostly by higher oil production and prices.

Regardless, remittance inflows will remain an important source of foreign exchange inflows moving forward. Remittances inflows are forecast to rise to roughly $5 billion by 2030, which represents a compound annual growth rate (CAGR) of 6,5 percent pa over the 2018-30 period.

This robust growth is ascribed to the fact that Ghana's young adult population is expected to expand rapidly over the forecast period, and this age cohort usually makes up for the bulk of emigrants. Also, while Ghana's growth prospects remain favourable, significantly higher income levels in countries such as the US (Ghanaians' preferred destination in 2017), will continue to incentivise emigration.