Mar 10, 2021
Will COVID-19 Change How African Migrants Invest Back Home?
We’ve on previous occasions discussed the important contributions of diaspora communities. The most visible contribution that any diaspora community has — especially in developing countries — is their economic contribution to their home countries through the substantial amounts of money they send back home to their families to supplement consumption and for investment. Today we look at these funds from an investment perspective, an area we have continually come across but one with little & fragmented information available for the migrants to reliably act on.
In Africa, diaspora remittances contribute to economic growth far more than development aid and foreign direct investments combined in many countries. According to data from the World Bank, 2019 diaspora remittances broadly made up between 5% and 10% of African countries’ GDP. Remittances as a percentage of GDP in 2019 were as high as 34.4%, 21.3% and 15.5% in South Sudan, Lesotho & The Gambia respectively.
Without these funds, it’s evident that economic growth across several sub-Saharan African countries would slump substantially. In 2020 for example, diaspora inflows certainly played a critical role in reducing the negative economic shocks brought about by the COVID 19 pandemic.
As the world’s economies work to stabilize and return to a new normal, it’s clear that putting aside funds to soften unknown financial shocks in future is now a priority for many. It is probable that the next few years may see an increase in the savings and investments made by African migrants working abroad. Those making investments with their money will always seek a return and suitable opportunities need to be made available for the continent’s 36 million migrants living abroad.
We learned from our 2020 African Diaspora Survey that about 21% of funds remitted back to Africa was collectively directed towards investment and saving. The majority of these funds flow into very traditional vehicles such as:
- Simple savings account with a bank or other financial institution;
- Purchase of land (with the intention of building a home in future);
- Purchasing of the investment property (such as apartments to rent);
- Investing in government debt securities (treasury bills and bonds);
- Investing directly or indirectly in other listed securities (including through mutual funds).
Our data and subsequent interviews with Africans in the diaspora has revealed that there’s a lot of interest in ways of investing back home. Real estate/ property related investments have been the main way to invest for a very long time. However, the higher value nature of these investments tends to lock out individuals who wish to regularly invest smaller amounts.
“Never test the depth of the river with both of your feet.” -Warren Buffet
We know that a better remittance experience could potentially increase how much African migrants are willing to send back home. However, we also know that offering more opportunities for the diaspora to invest in would also contribute to an increase in the remitted funds.
For people who’ve lived away from home for a long time, credible and trustworthy sources of information are key in helping them channel more funds home. The physical disconnection from a place where one is investing can be costly. Technology can therefore play a big role in bridging this gap and creating simpler, convenient and suitable investment opportunities for African migrants.
In Part 2 of this series, we will take a look at some of the challenges that are faced by the diaspora community with respect to investments in their home countries and possible ways in which tech can help resolve this.
