Zimbabwe risks losing $3b diaspora windfall

Zimbabwe risks failing to harness billions of dollars in diaspora remittances for long-term economic development, with the African Development Bank (AfDB) warning that most money sent home by citizens abroad continues to fund household consumption rather than productive investment.

Diaspora remittances have grown substantially over the past several years, rising from less than US$2 billion in 2018 to an estimated US$3 billion in 2025, according to the AfDB.

The figure makes remittances one of Zimbabwe's largest sources of external financing and significantly larger than foreign direct investment.

However, the AfDB says weak financial intermediation, economic instability and low confidence in formal financial institutions are preventing the country from converting these inflows into long-term capital.

"Zimbabwe's diaspora represents a stable and substantial source of external financing, yet its contribution to investment remains constrained by structural, regulatory, and macroeconomic weaknesses," the bank said in its Country Focus Report 2026 — Zimbabwe: Mobilising Zimbabwe's Development Financing at Scale in a Fragmented World.

The report said remittances averaged between US$1.8 billion and US$2 billion, equivalent to 4.3% to 4.8% of GDP, before reaching approximately US$3 billion, or 6.6% of GDP, in 2025.

By comparison, foreign direct investment stood at about US$465 million, while official development assistance was estimated at approximately US$800 million.

"However, their conversion into long-term capital formation remains limited due to weak financial intermediation, persistent macroeconomic volatility, and low institutional confidence," the AfDB said.

The bank identified high transfer costs and continued reliance on informal channels as major obstacles to effective mobilisation of diaspora funds.

"High transfer costs and continued reliance on informal channels further constrain effective mobilisation, reflecting limited competition, documentation burdens, and exchange rate concerns, alongside underdeveloped digital remittance systems," the AfDB said.

A significant amount of foreign currency is believed to circulate outside the formal financial system.

The Reserve Bank of Zimbabwe (RBZ) has estimated that about US$2.5 billion in cash is outside formal channels, with diaspora remittances believed to be among the sources contributing to the informal pool.

The central bank recently estimated that Zimbabwe requires approximately US$5.6 billion annually to finance its development needs, up from US$3.7 billion previously.

The AfDB said Zimbabwe had yet to develop several financial instruments that have helped other African countries channel diaspora savings into productive investment.

"Investment instruments widely used elsewhere in Africa — including diaspora bonds, collective investment vehicles, and remittance-backed securitisation — remain underdeveloped, reflecting currency risk, governance concerns, and weak macro-fiscal anchors," the bank said.

It also pointed to fragmented policy frameworks and the absence of a dedicated institutional platform for diaspora investment as further barriers.

The AfDB said countries such as Nigeria, Kenya, Egypt, The Gambia and Senegal had demonstrated that diaspora mobilisation depended more on institutional credibility and appropriate financial products than simply the size of a country's diaspora population.

"In 2024, leading African performers — Nigeria, Kenya, Egypt, The Gambia, and Senegal — mobilised between US$5,058 and US$10,167 per diaspora member annually, driven by credible, transparent, and well-coordinated institutional frameworks rather than diaspora size," the bank said.

These countries reduced transfer costs, maintained more predictable foreign exchange regimes and developed targeted financial products that encouraged diaspora investors to use formal channels.

The AfDB said Zimbabwe should adopt a similar approach.

"For Zimbabwe, diaspora finance should therefore be understood not merely as remittance inflows, but as a missed intermediation opportunity, reflecting structural weaknesses in financial markets," it said.

The bank said the objective should be to move beyond using remittances primarily to support household consumption and instead channel a greater share towards infrastructure, housing, small and medium-sized enterprises and climate-related investments.

"Lower transfer costs, stronger digital channels, enhanced consumer protection, diaspora-oriented investment vehicles, and credible risk mitigation mechanisms can help convert inflows into infrastructure, housing, small and medium-sized enterprise (SME), and climate-related investment," the AfDB said.

However, the bank cautioned that such instruments would only attract significant diaspora capital if supported by greater macroeconomic stability and trusted governance structures.

Zimbabwe's remittance inflows could also come under pressure as large numbers of Zimbabweans living in South Africa return home amid social and economic challenges in that country.

The Famine Early Warning Systems Network (FEWS NET) warned that cash and in-kind remittances could decline as Zimbabweans in South Africa continue returning home.

"Cash and in-kind remittances are likely to decline as Zimbabweans residing in South Africa continue to repatriate amid xenophobia-related social and economic attacks in South Africa," FEWS NET said.

The impact is expected to be particularly significant in southern parts of Zimbabwe, where many households depend heavily on remittances from South Africa.

According to the organisation, the Government reported that more than 115 000 returnees crossed through Beitbridge between the end of May and the end of July, with approximately one-third returning with government assistance.

The potential decline in remittances adds urgency to the AfDB's call for Zimbabwe to develop mechanisms that can turn diaspora finance into a more durable source of development capital.

With annual development financing requirements estimated at US$5.6 billion, the challenge for Zimbabwe is no longer simply attracting more money from its diaspora, but creating the financial and institutional conditions that encourage those funds to remain in the formal economy and support long-term investment.