Covid-19: A take on its impact on Zimbabwean remittances

THE consumption patterns of Zimbabwean households have been disrupted by the Covid-19 pandemic. This is due to the inability of households to maintain stable incomes.

Chido Dzinotyiwei
Economist

Uncertainty in the global economy continues to transmit vulnerabilities in the job and financial markets. Unemployment remains high, while emerging currencies have lost considerable value against the United States dollar since the outbreak of the pandemic, resulting in disruptions to both formal and informal remittance transmission channels.

The cost of living in the country continues to skyrocket with the consumption poverty line for an average family of five having risen by 21,3% to ZW$6 420,87 in April 2020, according to ZimStat figures.

The African Union in its study of the impact of the coronavirus on the African economy expected remittances to sub-Saharan Africa to decline significantly with Zimbabwe being no exception as the country heavily relies on remittances, whose inflow volumes have outgrown that of foreign direct investment, to sustain household consumption and, in turn, aggregate demand.

Growth in remittance inflows mirrors the growth of the Zimbabwean diaspora in the economic hubs of Africa such as South Africa, and the broader global community. In 2009, the Consortium for Refugees and Migrants in South Africa (CoRMSA) reported an estimated 1,5 million Zimbabwean nationals in South Africa. In 2019, Statistics South Africa (StatsSA) reported the figure to have risen to an estimated 3,6 million.

According to a study by Chereni and Bango in 2018 on migration, South Africa is the largest source country of remittances for Zimbabwe at 34% followed by the UK at 23% and the United States at 7%.

Unlike the previous macro-economic and public health crises the country and the global community have faced, Covid-19 has marked itself as a multi-layered crisis which has evolved from a public health phenomenon to a global recession-inducing pandemic that has affected both the supply and demand aspects of national economies.

The debilitating impact of the pandemic is being felt by every economic actor including those with robust economies. The challenges that face remittance senders and receivers appear to increase and their persistence remains uncertain.

To develop a comprehensive appreciation of the impact Covid-19 will have on remittances to Zimbabwe, a look at the economic events unfolding in South Africa — the base of intra-continental cash inflows for the Sadc region — is needed. The tiered lockdown measures have threatened industries that employ many Zimbabweans from e-hailing through Uber and Bolt to hospitality and tourism.

In its Global Economic Outlook report for 2020, the International Monetary Fund has revised its expected gross domestic product (GDP) figures for South Africa from 0,2% to -5,8% following a credit rating downgrade which led to approximately US$6,3 billion in portfolio outflows noted at the end of April 2020.

The volatility in the exchange rates is affecting the value of remittances as money originating from South Africa has been severely impacted by the fall of the rand against the US dollar. This makes it difficult to send the same US dollar amount that recipients in Zimbabwe had been receiving to add onto their household budgets. In the short term, a strain on household disposable income and economic growth in sectors that rely on high consumption rates is expected.

The varying levels of lockdown restrictions are presenting challenges for both remittance senders whose ability to send their usual value of financial support has not been affected by the pandemic. Governments’ enforcement on the closure of various business operations has excluded various agents acting in the interests of those wishing to transact internationally, thus limiting cash-out or door-to-door delivery of funds. Of the multiple firms that perform remittance transactions, money transfer operator Mukuru has extended its services to offer support to its African beneficiaries in kind through the extension of a grocery service offering a basket that includes 21 basic foodstuffs such as mealie-meal, cooking oil and sugar.

This option is a form of relief to the disruption in their cash-based remittance model which is facing challenges owing to the impending restrictions which limit the full function of their operations.

The pandemic’s timeline has presented difficulty in scenario planning and solution forecasting. However, it is worthwhile to note several factors that may influence the nature of remittances in the medium and longer term.

As mentioned above, the prevailing circumstances have encouraged capital flight from developing countries into markets that have financial markets with more liquidity and more stability. Capital flight slows down economic growth in emerging markets, thus creating a hostile economic environment which will make sustainable recovery difficult to attain.

In addition to offering social security packages to households deemed vulnerable to the adverse impact of the health-related aspects of the Covid-19 pandemic, the state must start considering the high potential of relief required to support domestic households that may lose part or all of their remittance inflows.
The pandemic’s toll on the global economy means that domestic recovery strategies must consider migrants, whose personal financial recovery is contingent on the recovery of foreign economies before they can return to meeting the financial obligations of relatives in Zimbabwe, as their remittances play a huge role in the economy.

To restore and even surpass the level at which remittances were received pre-pandemic, there needs to be an effort from the global community, whose actions are seldom determined by Zimbabwe’s small influence, financial service providers and governments.

Ideally, the global community must ensure that post-Covid-19 recovery is non-discriminatory and offers relief to all sectors in order to create more jobs that may be taken up by migrants. However, the pandemic has elevated the need for nations to protect their citizens, thus posing a threat to the livelihoods of migrants.

Financial service companies need to create and maintain environments that make money transmission easier, cheaper and favourable to the remittance senders. This can be in the form of offering lower rates and advancing digital channels by which remittances may be received and utilised to acquire basic goods and services. The recent partnership by Mukuru and WorldRemit to expand the cash pick-up network in Zimbabwe is one such digitally-driven solution enabling both remittance senders and receivers.

The role of local authorities is to cushion the negative impact of the decline in remittances through policy and reform efforts. One measure is to establish formal and informal service providers used to receive remittances as essential services. The accurate collection of remittance data can better provide workable solutions as the nature of the trade is prone to other risks in addition to the pandemic-related risks currently faced. For the state to widen their fiscal legroom in the long-term, remittance funds must find their way to Zimbabwean households and businesses with ease and transparency.

The vulnerability of Zimbabwean households to the systematic shifts catalysed by Covid-19 have both short-term and long-term effects that may last beyond the duration of nationwide lockdowns. For a country whose financial system recognises and relies on foreign cash inflows, serious considerations must be made on methods to support affected households, the enduring frailty of the financial system and the desired sustainability and growth of remittance receipts in Zimbabwe.

Dzinotyiwei is an economist. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society . — kadenge.zes@gmail.com or mobile +263 772 382 852.