THE revelation by World Remit that Zimbabwe is one of the top five beneficiaries of international remittances in Africa for 2019 underlines the potential that the country has to strategically channel diaspora remittances into large-scale investments in critical sectors of the economy.
Zimbabwe received more than US$505 million in international remittances from January to June 2019 and indications are that the annual figure will fall slightly short of the US$1,1 billion received in 2018. Of the 2018 figure, US$620 million was the share for diaspora remittances.
In 2017, international remittances were US$1,4 billion while diaspora remittances were US$699 million (Diaspora remittances share was down from US$779 million recorded in 2016).
According to the International Monetary Fund (IMF), diaspora remittances are household incomes from foreign economies arising mainly from the temporary or permanent movement of people to those economies. International remittances however encompass humanitarian assistance, developmental grants and aid to the country from outside donor organisations and governments.
A worrying trend is on the significant drop in official diaspora remittance figures, which continue to decline in each year from a peak of US$1,2 billion recorded in 2009. According to the Reserve Bank of Zimbabwe (RBZ), an estimated US$1 billion from the diaspora is remitted to Zimbabwe through informal channels every year.
From 1980 to 2005, international remittance inflows were less than 1% of the gross domestic product (GDP) of Zimbabwe. The figure picked up to 12,5% in 2009 after the economic collapse witnessed between 2006 and 2008. Since then the figure has been averaging 7% of the country’s GDP. According to the World Bank, Sub-Saharan Africa accounts for 9,8% of global remittance numbers and the figure grew to US$46 billion in 2018 (with Nigeria accounting for US$25 billion of that sum).
Remittances to the region are expected to rise due to economic headwinds that push migrants to better economies within the region and beyond. Diaspora remittances can be sent in kind through groceries and commodities such as electrical gadgets, clothing and household appliances. The decline in the diaspora remittances figure can thus be attributed to the use of informal channels such as cross-border transporters and hand deliveries through travellers especially on remittances from South Africa and Botswana which are now home to more than 91% of Zimbabweans abroad.
According to ZimStat, the majority of the estimated four million-strong diaspora population resides in South Africa which is home to 87% of the total number abroad, while Sadc countries such as Botswana, Namibia and Zambia account for 6%. Overseas, the United Kingdom contributes close to 3%, while countries such as the United States, Australia, Canada, Germany, New Zealand, United Arab Emirates and other countries combined contribute 4% of all emigrants.
The Zimbabwean government has been going around the world pleading with international financial institutions (IFIs) and other trading partners such as South Africa, China, Russia, Botswana and the UK for a stimulus package of close to US$2 billion to jumpstart the economy. Despite owing external creditors over US$8 billion, Zimbabwe is so desperate for additional financial packages to a point of mortgaging diamonds, gold, platinum and other minerals resources to get external loans.
The country also faces persistent foreign currency shortages for the importation of critical commodities which has triggered massive de-industrialisation and paralysed various public services such as provision of water, electricity and health care by the government.
There is also a huge infrastructure backlog running into billions of dollars in key sectors such as Energy, property development, health care, basic education, road and railway infrastructure which require huge amounts of funds to undertake and deliver. With such demand for foreign currency and genuine need to make repayments to external creditors, the government needs to devise policies to tap into diaspora remittances for foreign currency needs while pushing infrastructure development locally.
The remarkable economic turnaround stories of Asian economic giants such as South Korea, China and India in the 1960s to date cannot be written without mentioning the contributions made by their expatriates in the diaspora who sent billions of dollars back home each year for infrastructure and industrial development.
The remittances acted as cheap loans for development programmes in those countries under rapid economic transformation plans. The major difference with Zimbabwe is that most of these remittances were channeled to development projects through accountable and transparent policies initiated by their central governments.
Previous engagements of the diaspora community by the government show that Zimbabweans in the diaspora are very keen on investing in sectors such as transport and infrastructure development, renewable energy, agriculture processing, health care, financial sector, manufacturing and tourism apart from real estate sector. To channel remittances into development projects and spur economic growth in Zimbabwe, there is need to build diaspora confidence in local financial systems and craft policies that incentivise cluster investments which tend to be large-scale.
Diaspora Infrastructure Bonds with long-term maturities are a clear favourite provided there is financial and economic stability in the country. The government can also scrap costly and bureaucratic licence registration fees for investments into renewable energy as they are largely unnecessary for a country in desperate need for investments into alternative energy. It is a cause for concern to note that the Zimbabwe Energy Regulatory Authority imposes charges on generation permits for solar energy production (inexhaustible resource) instead of actually providing incentives.
Zimbabwe has vast tracts of land in Harare, Bulawayo, Victoria Falls and other towns set aside as special economic zones. However, most of the land is lying idle owing to economic instability, liquidity challenges and investment risks in the country. Holidays on capital gains tax, corporate tax and value-added tax to diaspora investors can lure capital. The major advantage of such a policy is that dividends form those investments will stay in Zimbabwe as opposed to foreign investments where profits are repatriated outside.
Diasporans would also be very keen to finance key infrastructure projects provided they are facilitated by financial institutions, local authorities and other independent parties instead of the government directly due to confidence issues and reasonable conflict of interest.
The government’s role in such deals is to be underwriters, providing the legal framework and promoting investment through tax breaks among other incentives. The recent cancellation of the US$400 million deal between National Railways of Zimbabwe (NRZ) and Diaspora Infrastructure Development Group (DIDG) and Transnet points that the government has serious flaws on upholding property rights and respecting contracts.
Diaspora remittances have been gradually falling since 2014 due to declining confidence in the local financial institutions despite the heightened exodus of skills to other countries in search of greener pastures. The emigration trend is increasing as economic decline in Zimbabwe pushes many into unemployment and poverty. The emigration of skilled labour to the diaspora has negative impact to the local economy, nonetheless their remittances back home can do far much more for the country than supporting families left behind.
If the much-sought-after foreign direct investment (FDI) inflows into Zimbabwe averages US$340 million in the last 10 years, then at least US$500 million in diaspora remittances channeled to development projects can go a long way to boost the local economy. The key question is on whether the government is willing to incentivise the diaspora community to partner in key projects inasmuch as they do to source loans from external financiers.
Like foreign investors, Zimbabweans in the diaspora also want land, mining claims and exclusive prospecting orders, tax breaks, national project status and government incentives for their hard-earned income that can easily be turned into development funds.
Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. — email@example.com or Twitter: @VictorBhoroma1.