SADC countries should brace for fall in remittances from SA
SADC countries should brace themselves for a decline in diaspora remittances from neighbouring South Africa as the continued weakening of the rand could severely constrain immigrants’ capacity to send money home.
Although most economies in the region have been growing at phenomenal rates, the majority of people in these countries continue to live in poverty, pushing them to seek employment in other countries, especially South Africa.
Remittances therefore now play a vital role in supporting these households.
Governments have also started integrating remittances as a tool for development in their poverty reduction strategies.
Harare-based economist Dr Gift Mugano says the cycle could, however, be broken as the weakening of Africa’s second largest economy and its currency, coupled with the slowdown in China, will have adverse effects on remittances.
He said Zimbabwean workers in South Africa had already begun feeling the effects of a weaker rand.
“In recent years, the dollar has appreciated against major currencies, which saw the South African rand not spared.
“This in itself has resulted in Zimbabweans (working) in South Africa technically seeing their incomes reduced by half as the Rand depreciated by 100 percent in recent years.
“This implies that basing on these numbers, in the short to medium term, we should expect a fall in foreign remittances,” he said.
Africa’s shared colonial past, which resulted in the interdependence of its countries, has made cross-border population movements inevitable.
And given the size of its economy, most migrants from the SADC region and beyond are drawn to South Africa.
While some countries, particularly South Africa, have responded to the migrant issue with policies designed to keep them out, this has not worked as an estimated five million migrants are now resident in South Africa alone.
Migrant labour continues to be a cornerstone of dependence and interdependence in the region.
The importance and role of migration in SADC countries are also demonstrated by the extent and significance of remittances to recipient households.
Zimbabwe, Malawi, Mozambique and the Democratic Republic of Congo have the highest share of migrants working in South Africa.
Lesotho is also one of the most migration-dependent countries in the world, with remittances from migrants being the major source of foreign exchange.
Studies have shown that 85 percent of migrant-sending households receive cash remittances which have easily outstripped agriculture in relative importance as a household income source.
In the case of Zimbabwe, Government unveiled a draft National Diaspora policy in September to put in place mechanisms to receive remittances that support productive ventures.
Last year alone, remittances amounted to over $1,8 billion, which contributed 15 percent to the GDP
But Dr Mugano feels the weakening of the rand will affect this initiative.
Zimbabwe has already lowered economic growth projections to 1,5 percent from the initial 3,2 percent owing to a drought that lowered agriculture output by 8,2 percent.
The slump in commodity prices has also not helped Zimbabwe’s economic trajectory, and indeed that of most other African countries who rely on mineral exports.
African currencies have also not been able to hold their own in the face of dwindling demand for commodities from the Chinese market.
The Zambian kwacha recorded a new low of 14 4100 against the dollar on Tuesday.
The South African rand also hit a new all-time low of 14 3303 to the dollar on Tuesday.
The fall is expected to continue into next year in line with the rally of the dollar.
“As to how long this problem of appreciation of the dollar will take is a fundamentally difficult question as it is being caused by the softening stance of the USA Federal Reserve, rebalancing of the Chinese economy and geopolitical issues including Russia-Ukraine and Greece. These three factors in my view are likely to be sustained for a long time, which may sustain a strong US dollar at our disadvantage,” said Dr Mugano.
Not only will the weakening rand hurt most economies who rely on South Africa for the bulk of goods and services as well as the export of commodities, it will also hurt the families who rely on remittances from their relatives in South Africa.
When Zimbabwe adopted a multi-currency regime in 2009, the rand proved popular in Matabeleland region because of its proximity to South Africa, where almost every household has a family member working in the neighbouring country.
Nomagugu Moyo, who moved to South Africa at the height of the country’s economic crisis in 2008 says she has been struggling to provide for her family since the rand began its slump.
“For me to raise $800 to pay school fees for my daughter who is enrolled at a private school in Bulawayo, I need more than R11 000 and that money does not come easily.
“I am now being pushed to take on two jobs while I work on getting her a study permit so that she can enrol at a school in South Africa which is cheaper,” she said.
She said most people working in South Africa now prefer sending groceries home instead of money.
However, most grocery items now attract customs duty after Government removed them from the travellers’ rebate in July.
This might encourage the smuggling of such goods into the country as migrants try to fend for their families.
This might create a new headache for the Government which is already struggling to meet revenue targets and has a budget deficit of $400 million.