Safeguarding Sudan’s $3b remittance lifeline against COVID-19

Authors: UNDP Sudan: Selva Ramachandran, Resident Representative, Mohammad Pournik, Senior Economist, Will Seal, Head of Communications.

Annual remittances of around US$3 billion are essential to Sudan’s economy and society. But, facing COVID-19, this lifeline is expected to fall by at least $500m. Mitigation efforts are critical and could outweigh potential losses.

Like many Low- and Middle-Income Countries (LIMCs), Sudan’s economy is dependent on remittances. They fuel livelihoods, alleviate poverty, support health and education, and help millions meet immediate needs.

However, with forecasts of a COVID-19-driven 20 percent global decline in remittances in 2020, and a 23.1% (US$37 billion) decline in sub-Saharan Africa, Sudan is anything but immune from potential disruption. Unfortunately, the consequences are likely to be dire for many poor households.

An upcoming UNDP Sudan study estimates total Sudanese remittances at close to $3 billion annually for 2018–2019 — ten times greater than official transfers — down from a peak of $3.3 billion in 2013. This $3 billion is critical to Sudan’s economy, equating to 8–9 percent of GDP, helping to cover over half the annual trade deficit and propping up the Sudanese Pound.

How COVID-19 creates a half a billion-dollar hole

The estimated $500 million loss of Sudanese remittances in 2020 comes from a diverse range of causes, from logistics to foreign job market contractions. Depending on the global pandemic situation, this reduction may prove to be a lower estimate.

Millions of Sudanese have moved abroad for decades in search of better employment, to escape conflict, and to provide a better life for their families, largely heading to Gulf Cooperation Council (GCC) countries, other north African countries, South Sudan and Ethiopia, as well as North America and Europe.

Unfortunately, the socioeconomic shocks impacting host nations affect the incomes and lives of Sudanese expatriates and consequently the flow of remittances.

For transfers still taking place, the pandemic has added to the difficulty and cost of a process that was neither simple nor cheap beforehand, largely due to sanctions and foreign currency controls. Prior to COVID-19, a World Bank study found fund forwarding charges from UAE to 12 countries increased by a few dirhams (US$0.5–1) in December 2018. But fees for sending $200 to Sudan, the costliest destination, grew 75% from $11 to $19.50.

UNDP Sudan/Will Seal

Now, lockdowns have restricted the operation of currency transfer offices, partially disrupting the most common route for remittances into Sudan. This has negatively affected Sudan’s global diaspora’s ability to transfer money to relatives, particularly for those in OECD countries, which lack the extended informal money exchange networks present in Gulf countries.

For those carrying cash or goods across the border, the ongoing mid-March closure of Khartoum Airport to commercial passengers has deprived the diaspora of this regular channel.

But, most critically, the current situation has jeopardized potential remittances by restricting overseas job opportunities.

The biggest hit: Gulf job losses and returning workers

COVID-19’s socioeconomic effect will impact the two thirds of Sudanese remittances originating in GCC countries, with a drop in oil prices and lockdown measures driving significant job losses and salary cuts for the one million Sudanese expatriates residing there.

Remittances are expected to drop by $500 million this year without mass expatriate returns. Unfortunately, given the high cost of living, the prospect of returns (and continued falls in remittances) only increases the longer oil prices remain depressed and lockdown measures extend, as a significant number of Sudanese migrant workers cannot remain long-term on reduced incomes.

Compounding their challenges, these expatriates face similar barriers as migrants in Sudan: inability to send money back via travelers; difficulties accessing exchange offices; and lockdown-driven movement restrictions.

To date, Sudanese in GCC countries have been largely unable to return due to travel restrictions, coupled with a hope for return to employment and regular pay in the near future. However, as of mid-June, returns have begun, with more than 20,000 expected to utilize Government of Sudan-facilitated air and land transport services. An unknown number of these will be unemployed migrant workers returning home. Unfortunately, reliable data on this issue is a challenge.

UNDP Sudan/Will Seal

The prospect of thousands of workers returning to a recession-hit, locked-down economy struggling with social pressures, with millions under and unemployed, is highly concerning. It is critical for transitional authorities to negotiate with partners in GCC countries to obtain relief for Sudanese migrants as part of the expected support for Sudan’s transition.

Simultaneously, authorities should plan to productively incorporate and employ migrants who are likely to return — a process requiring a Whole-of-Government and Whole-of-Society approach to ensure the best outcome in a difficult context.

Keeping remittances flowing

Action is also urgently needed to keep remittances flowing, ensuring a crucial lifeline and a source of foreign exchange. Without innovative and immediate action, the support from the international community — $1.8 billion committed at the June 2020 Sudan Partnership Conference — will be partially offset by the $500 million or greater drop in remittances.

Most pressingly, Sudan’s removal from the US State Sponsor of Terrorism List (SSTL) will open more seamless options for transfer of funds and economic investment.

At a practical level, logistical difficulties and high transfer costs can be reduced by facilitating access in host countries to new, low-cost electronic transfer mechanisms already available to large numbers of African migrants, including those in OCED countries. The existing network of exchange offices in Sudan can be linked with the myriad of mechanisms to offer the diaspora a functioning transfer system.

UNDP Sudan/Will Seal

Access to such a service is crucial at this time when, due to COVID-19, sending money through travelers is no longer practical, and sending money through regular banks, when possible, carries high transaction costs for small transfers.

Diaspora investment: $500m loss to a $500m gain

Sudan’s influential diaspora have continued to demonstrate interest and support for the Prime Minister’s “Stand Up For Sudan” initiative but have faced difficulties with international cash transfers, mirroring challenges encountered for remittances.

To tap the financial support from the Sudanese diaspora, the Government could establish a diaspora trust fund (similar to a UNDP-supported mechanism in Ethiopia), working collaboratively with the diaspora, civil society, and the international community.

UNDP Sudan’s upcoming remittances study indicates such a model could actually increase the total flow of diaspora resources to Sudan, despite the unfavorable global conditions created by COVID-19.

A fully functioning diaspora trust fund, in addition to channeling daily needs remittances from overseas Sudanese expatriates, would allow for improved general cash transfers, opportunities for the diaspora to invest commercially in Sudan, and increased support for initiatives like “Stand Up For Sudan”.

Consequently, while remittances are expected to decline by $500m, successful diaspora mobilization and investment via a trust fund are modelled to potentially exceed $1b in the first year, in part facilitated by substantial diaspora savings that are currently invested in host countries in the absence of an attractive system for investing in Sudan.

Clearly, a functioning and low-cost financial transfer system is required, to meet the needs of diaspora’s friends and family and support the development efforts of the transitional Government.

By UNDP Sudan

‏‏شعوب متمكنة، أمم صامدة -الحساب الرسمي لبرنامج الأمم المتحدة الإنمائي في المنطقة العربية. UNDP official account in the Arab States