Opinions of Saturday, 1 October 2005
Columnist: Doe, James W.
Overseas Ghanaian Workers: The challenge of remittances
...What hope remains for the poor and the economy?
Whereas, there are many measurable factors that could justify the trend and volumes of formal remittances, it is even more difficult to attempt similar measurements in the case of informal remittances, delivered in trickles through unspecified means.
The later is believed to form a very high percentage of overall remittances to a country like Ghana. Informal remittances play a greater role in poverty alleviation.
For the purposes of my analysis in this paper, I will limit the results of the study to private remittances (money) or private unrequited transfers.
There are also a few reasons why people may prefer one method of remittance (formal or informal) to the other.
I did observe that trust, baggage carrying capacity of persons travelling and sometimes incentive payments made to couriers, be it family, relations or friends returning home does account for the heavy reliance or otherwise on certain aspects of informal remittances. Be it in cash, in kind (goods) or both.
High fees (transaction costs) and charges from between 2.5% to 40% (by Western Union, MoneyGram, Travelex, credit unions, the banks, etc.) of face value, in the form of scaling fees and sometimes even flat fees on monies transferred through formal remittance channels makes it unfavourable to the poor.
These fees do discourage many from using the services provided, so resort to informal channels. In the case of sending small amounts of money. Hence, the resultant lack of accurate data on actual sums of remittances entering Ghana.
This state of affairs have made informal remittances a much preferred option and a more viable alternative. Though it sometimes comes with higher risks.
Even ardent users of the informal remittance routes may sometimes be compelled to resort mostly to the formal means.
By sometimes taking advantage of the speed of delivery and reliability when natural calamities (drought, famine, floods, etc.) political crisis (as in Togo) and civil wars (that plagued say Rwanda, Somalia, Sudan in the Darfur region) occur.
We are also aware of the distabilising situation that occurred in our backyard in the West African States (Liberia, Sierra Leone and Cote d'Ivoire).
It has become a useful channel during emergencies (like accidents, ill-health; health care, funeral costs, lawsuits, bail fines, education: school fees, etc.) facing family members, relations, associations, communities and friends.
So that the link between volatility and remittances at the, micro-level (household) suggests that remittances play a critical role in reducing the vulnerability of individuals to shocks.
With the benefit of internet technology (IT) the speed of delivery of formal (for example Western Union) transfers have increased tremendously. This has also affected the willingness and ease to remit.
Therefore reducing the period between transfer to receiving time in the home country from between a few minutes or hour to about a day in most cases by virtue of the different time zones globally.
IT use and the tax regime of the countries (Australia, Canada, EU, New Zealand, US, etc.) where the remittances (money) come from does influence the cost of transfers.
The above has often accounted for the high cost for the transaction costs for transfers made through private finance companies (Western Union, Uniteller, Vigo, Travelex; not in Ghana, Ghana Express, etc.) and the banks.
This cost derivative has been on the decline and it is believed to be reduced drastically as the pressure mounts. Until that happens sooners Overseas Ghanaians Workers (OGW) will continue loosing chunks of their remittances through the formal methods.
The above situation thus remains, uneconomic, unfair and unjustifiable because it results in double taxation and weighs heavily on immigrant families too, who are mostly poor.
It does take an extra cost on the telephone bill as well, to inform the recipient at home of the details of number, provide the required identification (passport), and sometimes cumbersome in view of a test question required for Ghana.
The use of e-mail in delivering this sort of information may be cheap, I reckon it should not be an option for security reasons. Also in view of the possibility of hacker and phisher attacks.
A further, transport fare has to be paid to reach the finance company (First African, etc.) a money transfer agent or bank in the nearest town or city to receive the money.
There is some hope in the horizon and I believe cost cutting approaches by stakeholders will have to be forthcoming in the long term.
There are signs of increased efforts being made to bridge the digital divide, through poor-centred ICT/IT to achieve the MDGs and the G8's goal of making poverty history.
Competition among various money transfer (or financial) companies has made for instance the Western Union (WU) to develop some innovative ways to either attract or retain clients using formal channels of transfer.
Some of these include; save money when you send money, back to school bonanza, phone card gifts, and phone home for free services. The effects remain to be seen as transaction costs have not changed much.
Also, transfers could be made by phone in certain countries, through an agent(usually) and online services offerred by certain banks. The use of credit and debit cards remain the other new options available to would-be persons who will want to remit.
With better tracking and improvements in good records keeping, details and accuracy of remittance data at entry points or border posts or crossing, Ghana could gain a better understanding of the trends that will be registered.
Ghana's growth pattern in the wake of dwindling production (with the exception of cocoa, 2004) in industry (textile), fisheries, poultry, grains production etc., labour uncertainties (at the public sector and TOR), weakened bourse, SMEs/PSI crunch and private sector slump suggests, that the steadily increasing remittances have become largely the stabilising factor of the economy even in 2005.
There is the vital need for improvements to be made through policy initiatives by government to cut transaction costs imposed by operators, should thereby be given the necessary encouragement.
Hopefully, the last part of the essay will deal with the significant impact (with supporting data) remittances from OGWs, make toward poverty alleviation and instilling confidence in the economy (reversing the later may not necessarily not be accurate) on the whole.
*Questions? Comments? Suggestions? Please write to me!
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