Ethiopians abroad are sending $3.2 Billion to their families

Ethiopia receive USD 3.2 bln in remittances, says World Bank

By Binyam Tamene       

NBE calls figures “exaggerated”

The World Bank challenges the National Bank of Ethiopia’s figures of remittance inflow as its study indicates the country is getting at least 3.2 billion dollars yearly.

Despite an increase over the years, the official report of the National Bank Ethiopia (NBE) shows the amount of money the country is getting from remittance inflow has never surpassed the one billion dollar barrier.

However, the survey forwards “an astonishing amount of figures,” according to officials in the banking industry, which quadruples the latest remittance inflow to 3.2 billion dollar or 52.8 billion birr approximately.

In the budget year of 2008/09, the official data from NBE indicates that Ethiopia earned about 723 million dollar from international remittances transferred by the diaspora and foreigners.

According to the survey’s estimation, 14 percent of Ethiopian adults regularly receive an average of 600 dollars from abroad, at an average of 120 dollars per transaction and five transactions a year.

However, the outcome of the research “surprised” many in the financial sector. “We are astonished by the figures and I think it’s exaggerated,” said a remittance expert of NBE, who wants to remain anonymous, adding “we need to look at the research first before responding to it.”

Another official in the private banking business said the study seems to forget to take the official date as a basic for research “and I still have doubts about the outcome”.

But, the World Bank said, despite significant progress in methods of recording remittances all over the world, most official statistics in sub-Saharan Africa still underestimate the true size of remittance flows.

A consultant on remittances at the World Bank, Professor Donald Terry told Capital that he was not surprised that “people in Ethiopia are surprised”.

“This is a typical reception that you hear when you release the estimate of this kind,” he added. “The methodology used for the study is very accurate and has caused the same kind of stir across the world when it was first used ten years ago.”

Besides, the expert said, the number of diaspora Ethiopians is so significant that there is a very high chance of this figure to be accurate. Reports estimate that between 1.5 million and 2 million Ethiopians are living abroad.

“We are not trying to get into any confrontation and it’s simply to say that there are certain types of methodologies which are very difficult for official data collection to reflect accurately and this is one of them,” he said.

The professor urged the national bank to engineer a type of methodology of data collection that tracks back both informal and formal channels.

Informal vs formal

Although Ethiopians receive money from various countries around the world, the survey pinpointed United States, the United Arab Emirates and the United Kingdom as the top three countries from which family members regularly send remittances back home.

The survey, that examines remittance flow into Ethiopia, explores formal and informal channels used for transfers, associated costs, and how remittances are used by Ethiopian families.

Remittance companies and banks are the most common places for Ethiopians to receive international remittance.

Among 2,412 Ethiopian adults interviewed in the research, just under two thirds (64 percent) receive money at a remittance company and 21 percent receive remittances through banks.

However, fourteen percent of Ethiopian receivers rely on family members or friends traveling to and from Ethiopia to receive their money.

“There is a big chunk of money that the banking sector should work on to direct it to the formal sector,” said another World Bank expert in a meeting that was organized to announce the results of a national survey profiling remittance inflow to Ethiopia in 2009.

According to the research, international remittances have a major impact on the financial situation of the Ethiopians who receive them.

In addition to helping recipients afford basic necessities, some recipients are also leveraging remittances for the future through investment in education, small businesses, homes and savings.

Most Ethiopians who receive remittances rely on this money to cover at least some of their daily expenses such as food, clothes, housings, utilities and medicine. “In fact, a third of the respondents say that all of their remittance money is used for their daily necessities,” the study indicates.

Beyond the clear impact that remittances have on the direct recipients, the reach of international remittance stretches across the country.

Very few receivers say that they are the only person who benefits from the money they receive. Each international remittance sent to an individual in Ethiopia impacts an average of three people.

Furthermore, one fifth (20 percent) of international remittance recipients say they send a portion of this money to someone else in another part of Ethiopia.

Africa’s perspective

Remittance flows represent a significant share of national income and foreign currency earnings for Ethiopia and many African countries.

The amount of remittances to Sub-Saharan Africa is significantly greater than foreign investment and official development assistance to the region combined.

However, according to the World Bank many policy makers and financial institutions in Africa overlook the effective role that remittances can play in dealing with economic shocks, access to finance and poverty reduction.

Despite significant progress in methods of recording remittances globally, most official statistics in sub-Saharan Africa still underestimate the true size of remittance flows.

In 2009, it exceeded 21 billion dollar and it is expected to grow by almost 2 percent in 2010 despite a weak global economy.

This is partly due to a focus of data collection efforts on formal channels, such as banks. Improving remittance data collection can lead to a better understanding of channels used and play a role in leveraging the development impact of these substantial resource flows for recipients and the communities they live in.

Policymakers and remittance service providers can play an active and supportive role in leveraging the development impact of remittance transfers by facilitating formal remittance flows, thereby reducing the costs of remittance transfers, the World Bank suggested.

Source: Capital Ethiopia