The other side of aid: remittance to families for consumption and investment

Remittance to Africa continues to shatter record each year since the World Bank began tracking the figures. As recent as 2017, those figure reached $37.2 billion. It is projected to reach $39.2 billion in 2018 and $39.6 billion in 2019. At this rate, coupled with the resounding recovery of the global economy over the last 8 to 10 years, that number is projected to continue on an upward trend. But one may ask, why are those remittance figures continue to increase? Is it that Africans are sending more money back to their families each year? Well, that could be one of the reasons. However, the better answer could be found in a recent analysis by Pew Research that puts the number of African living outside of the continent at 25 million. This surge in the number of African living outside of continent is fueled by the rise of Africans migrating from countries, mostly Sub-Sahara countries, to find “greener pastures” in Western countries. The size of Africans living outside of the continent has contributed to the continuous rise in remittances to the continent.

For some of those countries that receive remittances, it makes up a significant amount of their GDP. Nigeria received $22.3 billion in remittances while remittances to Liberia makes up 25.9 percent of the country GDP, that’s $525 millions, which is few millions shy of that country’s annual budget. These are significant amount of money for most of these countries. This leads me to the issues and questions I would like to explore in this article; how are these funds being used by the recipient? Are they mostly remitted for consumption or development and business? How do Diasporans measure the return on their investment for these remittances? How do we (Diasporans) curve the mismanagement of remitted funds? Some of the funds remitted are for personal consumption for most people with families back home without any source of income. If so, for remittances to family back home without any source of income, should we have incentivize those remittances to encourage entrepreneurship? If not, have we been enabling a generation of Africans who expect money from their relatives overseas without any incentives to encourage entrepreneurship or some form of nudging towards self-reliance?

My favorite of these questions is the mismanagement of the funds intended for investment at the hands of “trusted” business partners or family members. Every African community in the United States that I have had the opportunity to have intimate developmental conversations have had stories of relatives duping them out of thousands of dollars earmarked for investments in their regular remitted fund. For some Diasporans, these “failed investments” at the hands of close friends, family members or business partners have discourage them from carrying out investment initiatives in their respective countries. Yet, for those who are undeterred by the mismanagement, they have come up with various strategies to curve or mitigate the possibility of being duped while still investing on various projects. Here are some of the solutions that were gathered by several people.

· Oversee the investment project yourself during vacation visit by sending the money via bank wire, Western Union or Money Gram a week prior to visiting.

· Have another person conduct check-in balance on the project or business activities….check-in balance

· Hiring a company to oversee the project or investment. There is also risk of inflated estimates. Example: quoting a $10 bag of cement for $12.

Applying these strategies doesn’t guarantee that your money wouldn’t be squandered. However, it mitigates the risk of solely relying on individual back home to carry out investment projects. Some of these people are our family members, friends and other relatives. But the truth of the matter is that some of them have never been in possession of huge sum of people. By instantaneously entrusting them with money to build houses, start businesses or even money remitted to be distributed amongst the rest of the family, they become overwhelmed and tempted to misuse it. One thing that seems constant in these stories is the moral licensing. One story in particular was that of a Kenyan who entrusted his brother to build a convenient store in his neighborhood. After sending him funds for every stage of the construction, he learnt that the building that should have been completed had yet to have a roof put on it. He questioned his brother only to be told that “you should consider yourself lucky you have a trusted person on the ground to build your store.” As humans, we always think that our moral compass is intact. Its true measure is revealed when we are put in ethical uncertainties of our social life. For the case of the Kenyan brothers, the one overseeing the construction felt completely justified by misusing the project fund because the act of overseeing the project afforded him that. These kind psychological bargaining is something we often hear as some of the distorted reasoning for mismanagement of funds remitted by Diasporans intended for businesses, construction of their homes or even funds intended for distribution to other relatives.

Gauging return on investment:

The upside to these problems of mismanagement is that regardless of the circumstances, Africans want investments that develop their respective countries. They want to invest, start businesses, build homes and carry out many other projects to advance their villages, communities and countries. This is something for which we should all be excited. But we must take a different approach to what has plague the Diaspora communities around the world. We must put the onus on them, those business partners, families and friends who mismanage or misuse these exorbitant amount of remitted funds that flow into these countries. This can be accomplished several ways.

· Develop an incentive scheme that is tied to the performance of the business or project. This is similar to a line of credit at a bank. Every quarter or six months, review the progress of the business or project. If the performance is meeting expectations, either reduce the amount of money being committed or depending how worse the performance, cut off the remittance of fund and explore different alternatives.

· Develop a metric to calculate your ROI (return on investment) on every stage of the business or project on a quarterly, semi-annually or annual basis. Again, don’t go putting money into a business whose ROI you haven’t evaluated or aren’t measuring. If the project is a construction, do anticipate some over budget cost. However, do calculate and know how much each phase of construction. If this is a business start-up where evaluations are being made on future earnings, make sure you understand how those figures in the projections were derived.

· For funds remitted to families or friends regularly, incentivize it to encourage entrepreneurship or some form of nudging towards starting a business, self development or both. I will be hated for saying this but, one cannot continually remit money to someone without nudging or encouraging that person to develop them professionally either by going to school, learning a trade or even starting a business. If not, you will be failing the person and therefore making them completely rely upon you for everything.

Africans will never stop investing in their villages, communities and countries. Even with the mismanagement of remitted funds. We — the Diasporans — along with our local business partners, families, friends or other relatives have the tools to mitigate these investment risks. We have a common and long term goal, helping in the investment and development of a countries for which we can be proud.

This is an issue in the Diaspora communities that we often hear during gatherings and other social events. However, these stories seldom make it to open forums for open dialogues which might result in and foster solutions. This is in no way trying to point finger at one group or the other but rather open dialogues for solutions.

“When I give food to the poor, they call me a saint. When I ask why they are poor, they call me a communist.” — Helder Camara

Gabriel Tagbito Carter

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