Charges in sub-Saharan Africa average 12% on transfers of $200
The South African government has recently made two moves that stand to imperil future remittances to its neighbouring countries — and, in turn, economic stability in the region.
Towards the end of last year, the government made the decision not to renew the Zimbabwean Exemption Permit regime, which was first introduced in 2009 as a temporary solution to a growing Zimbabwe-related refugee crisis. The permits allowed holders to work, study and conduct business in South Africa.
The permits expired in December 2021 and their holders have until the end of this year to apply for regular ones. If they are unsuccessful, they will have to leave the country or face deportation.
The department of employment and labour has also recently tabled the draft national labour market policy (NLMP), which seeks to clamp down on the hiring of migrant workers in certain sectors.
These policy decisions seem to form part of a concerted effort by the government to crack down on the number of people from other countries living and working in the country. In doing so, the government will presumably grant South Africans greater access to the economy, which has struggled to create enough jobs for its growing labour force. South Africa is host to at least 3.7-million migrant workers from the Southern African Development Community (SADC) region, according to FinMark Trust, which tracks remittance flows.
But fewer migrant workers in South Africa also means that less money will be remitted to other parts of the continent. A permanent obstruction to remittance flows from South Africa will jeopardise Africa’s poor and stability in the region, experts warn.
Frederich Kirsten, a researcher at the University of Johannesburg, said the recent policies may have “a huge impact” — especially if they result in a sharp decline in remittances being sent from South Africa to its neighbouring countries.
“That can influence factors like food security for Africa’s poor. It may even drive people back into extreme poverty. So it can have a huge impact, especially on the welfare of people on the lower end of income distribution in African countries,” Kirsten said.
A regional challenge
South Africa’s economy has deep ties to migrant labour. In his foreword to the draft NLMP, Employment and Labour Minister Thulas Nxesi notes that the country has for decades relied on hiring migrant workers from the rest of southern Africa to establish and expand its agricultural and mining sectors.
But, Nxesi points out, the economy and labour market have changed significantly since the 1990s, with the dominance of the agricultural and mining sectors giving way to growth in the services industry.
“The dependency of neighbouring countries on migrant workers’ remittances created by decades of sending workers to South Africa, however, continued well beyond the recent changes in the South African labour market,” Nxesi says.
The NLMP, which is South Africa’s first distinct policy on labour migration, proposes — among other things — the imposition of quotas to limit the number of foreign nationals from competing for technical and low-skilled jobs.
The policy also considers ways to guard the interests of migrant workers in South Africa, as well as the benefits to countries of origin. This entails protecting the ability of migrant workers to send money home.
Research by the Organisation for Economic Co-operation and Development (OECD), published in 2018, noted that immigrant workers are more likely to be employed than native-born South Africans, which is consistent with the country’s very low employment rate.
South Africa has one of the highest jobless rates in the world. According to the most recent figures from Statistics South Africa, the unemployment rate under the expanded definition — which counts economically inactive people in the labour force still looking for work, as well as discouraged work seekers — hit 46.6% in the third quarter of 2021.
Immigration seems to be, at least in part, demand-driven, and immigrant workers are frequently found in occupations with high growth rates, the OECD research noted.
In a post-budget briefing earlier this month treasury director general Dondo Mogajane weighed in on the moves by the government to reduce the perceived burden of immigrants on South Africa’s economy. Mogajane pointed out that most of the panellists talking at the event, including himself, probably employ at least one migrant worker.
“The reality is that the South African challenge is not only a South African challenge … It is a regional challenge. It is a continental challenge,” Mogajane added.
The government, the director general added, has to have tough conversations with its neighbouring countries about the broader regional economy. “What is there that you need to do in your own country to actually make sure that you don’t force people to flee or to run into South Africa, perceiving that there are more opportunities in South Africa?”
Mogajane’s comments reflect the tenuous balancing act the South African government has embarked on by adjusting its migration policies, which risk throwing the regional economy off kilter. The country, which is among the most politically stable on the continent, is also a major source of vital remittances to its neighbouring countries.
‘A lifeline’
Remittances, Kirsten said, are important to the economic development in African countries, outweighing foreign direct investment. Remittances from South Africa to other African countries are particularly important in this regard, he added.
According to data from US-based think tank the Brookings Institution, remittances to sub-Saharan Africa have risen considerably since 2004. When foreign direct investment in the region started to decline in about 2015, remittances continued to grow. By 2019, remittances were comparable to official developmental aid.
There is a relatively large body of research looking into the economic upshots of remittances. One article, published by two researchers from Fort Hare University at the end of 2020 – when remittances plummeted in the wake of Covid-19-related lockdowns – found that remittance inflows stimulated economic development in SADC.
Even in cases where remittance funds only have a marginal and limited effect on growth, they can be very important in improving welfare, the article noted.
The economic effect of hindered remittances to other countries may also have a spillover effect on South Africa, though this remains to be seen, Kirsten said, adding: “There are a lot of factors that need to be considered when these types of policy changes are made.”
Economist Sheilla Nyasha, who has published research on the economic effects of remittances, told the Mail & Guardian that cross-border remittances “have been a lifeline for most people”.
Remittances, Nyasha said, are a source of investment financing. “People in the recipient countries can buy equipment and invest into their businesses … It is a good starting point,” she said, adding that — when remittances are used for consumption purposes — they also have a multiplier effect.
Another way remittances benefit economies is through human capital investment, Nyasha said. “A lot of people who are underprivileged rely on remittances to pay medical bills or their education. So in the long run, because of remittances, the economies are able to have a healthier labour force.”
Some research has pointed to the negative effect of remittances on recipient economies, including a creation of dependency.
“That culture of dependency has a way of impeding economies. There is also a tendency to spend remittances on goods that don’t add much value to the economy,” Nyasha said.
But, she quickly added, the net effect of remittances is positive. And, if they are cut off to a country like Zimbabwe, the downside is inevitable. Zimbabwe’s official expanded unemployment rate was 47% in the last quarter of 2021. Other estimates put it much higher.
“In my view, there will be trouble in Zimbabwe. There will be trouble in recipient countries. Because many people who live there will lose a source of livelihood. Health will deteriorate. The human capital index will fall,” Nyasha said.
“As that economy struggles, it will become a regional problem. And that will then fall back on the countries that have cut remittances.”
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