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Remittances: Africa's Quiet Financial Lifeline

Often overlooked in development, remittances quietly sustain households, stabilise economies, and reveal the deeply human foundations of Africa’s financial resilience.

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Key Takeaways:

  • Remittances (private transfers sent between individuals, often across borders) are a critical yet under-recognised source of finance across much of Africa.
     

  • Despite measurement challenges, remittance inflows have grown substantially and form a meaningful share of GDP in several countries.
     

  • In many parts of Sub-Saharan Africa, households receive more from family members abroad than governments receive through foreign direct investment; and these flows are often more stable during economic shocks.
     

  • Targeted reforms can encourage formal transfers, improve transparency, and draw more money into national financial systems.
     

  • Sending money within Africa remains expensive, with high fees driven by limited competition, regulatory constraints, and currency controls.
     

  • South Africa occupies a distinctive position as the continent’s largest remittance-sending country, redistributing income through longstanding migrant labour networks. Even where remittances appear small at a macro level, they play a meaningful role in sustaining livelihoods, particularly for rural and lower-income households.

Remittances rarely make the news, but are large and growing in Africa

Remittances rarely make the news, but across much of Africa, they are a larger and more reliable source of finance than foreign investment. 

 

Remittances are private money transfers sent between individuals - most commonly between migrants and their families in another country. These small amounts of money play a crucial role in supporting households, especially low-income households in developing countries. Studies by the World Bank and other researchers have found that remittances are effective in reducing poverty, and are used for essential household expenses, such as food, school fees and healthcare. 


But, despite their importance at the household level, remittances are often overlooked as a key resource for development. Part of this is the difficulty in tracking remittances: remittances may be sent through formal banking systems, but may also be sent informally, from person to person. For example, while formal remittances from South Africa to other SADC countries was estimated at R19 billion in 2024, informal remittances were much harder to estimate. Researchers at the South African Reserve Bank estimate that the informal market is roughly 17% the size of the formal remittance market (or R680 million) — a figure they note is likely a substantial undercount. Taken together, this suggests that a significant share of cross-border remittances remains largely invisible in official data.

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Despite the challenges in measuring informal remittances, the broader trend is clear: remittance inflows to Sub-Saharan Africa have grown substantially over the past two decades. In several countries, they form a critical share of national GDP. In The Gambia, Comoros and Lesotho, for example, remittances account for roughly 20% of GDP.

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In absolute terms, Egypt, Nigeria and Morocco receive the largest remittance inflows on the continent. Egypt stands out in particular. Alongside a sizable diaspora in the Middle East and the United States, deliberate policy choices have helped channel more money through formal systems. The Egyptian Central Bank has introduced measures to promote financial inclusion, encourage diaspora savings in local bank accounts, and make transfers faster and more transparent. These reforms have contributed to a marked rise in formal remittances, and in total inflows - showing that with the right incentives, governments can formalise transfers and draw billions into the financial system.

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Remittances in Sub-Saharan Africa track with Foreign Direct Investment

Foreign direct investment is often treated as the gold standard of external finance for developing economies. Yet across Sub-Saharan Africa, households often receive more from family members abroad than governments receive from foreign investors through Foreign Direct Investment (FDI). Remittances are also often more stable than FDI inflows, and are counter-cyclical: inflows increase during crises (such as environmental or economic disasters). FDI, on the other hand, often declines during the same periods. This does not mean that remittances will always protect the most vulnerable against disasters: during the COVID-19 pandemic, for example, remittance inflows into Africa declined as many workers were laid off, or struggled to send money across borders during national shutdowns. However, while FDI largely depends on investor confidence in an economy, remittance inflows rely on a much more stable, human reason: taking care of family at home. 

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Note: FDI inflows to Sub-Saharan Africa surged in 2021 largely due to major corporate transactions and a rebound in large-scale energy and infrastructure projects following the pandemic slowdown. The increase was driven in part by a significant share exchange between Naspers and Prosus in South Africa, alongside rising investments in oil, gas, renewables and greenfield projects across countries such as Nigeria, Mozambique and Ethiopia.

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Although remittances are growing, sending money is expensive, and hinders development

Despite growing remittances, and public acknowledgement of the importance of remittances in supporting economic growth and individual households, sending money in Africa remains costly. The global average for sending money to another country, across major currency corridors, is 6%. In Sub-Saharan Africa, it is close to 9%. Within G20 countries, South Africa is the most expensive country to send money from, with sending $500 costing an average of 10% in the first quarter of 2025. 

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Digital services and technological advances in fintech are playing, and will continue to play, a crucial role in reducing the costs of transferring money. Fees remain high because of limited competition, regulatory barriers and currency controls. In addition, money sent through less popular corridors often include extra fees. 

Remittances barely register on South Africa’s GDP, but support one in ten households in the country 

Remittances in South Africa look slightly different. South Africa is not a typical remittance-receiving country in Africa. Instead, it is the largest remittance-sending country on the continent. This is due to the large migrant population, largely from SADC countries, in South Africa. Many migrants from SADC work in industries such as mining, agriculture, construction and services, and send money home regularly. 

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On a macro scale, remittances into the country look almost irrelevant, making up 0.2% of GDP in 2024. However, on a household level, remittances play an important role in sustaining livelihoods locally too. In the 2024 General Household Survey, a nationally-representative dataset which surveys households in South Africa, 13% of households report receiving remittances in the past year. 

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8.7% of households reported relying on remittances as their main source of income - almost exactly the same as the percentage of households relying on business income as their main source of income. 

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Remittance-reliant households are more likely to live in rural areas, and probably benefit from local remittance inflows: for example, receiving money from family members that have moved to key metros such as Johannesburg. Likewise, provinces with no key metros, such as Limpopo and Mpumalanga, have higher numbers of households reliant on remittances, than provinces with metros, like Gauteng and the Western Cape. In this way, remittances link urban labour markets with rural consumption, helping households maintain consumption without government intervention.

Conclusion

Remittances are often treated as background financial flows: small, private transfers that sit outside formal development finance. Yet across Sub-Saharan Africa they rival, and sometimes exceed, more well-known sources of external funding such as foreign direct investment. Unlike volatile capital flows, remittances tend to arrive steadily and predictably, cushioning households during economic downturns and environmental shocks.

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South Africa’s role in this ecosystem is both distinctive and underappreciated. As the continent’s largest remittance-sending country, it acts as a financial anchor for neighbouring economies, redistributing income across borders through migrant labour networks that have existed for decades. At the same time, remittances remain a critical support for many South African households, particularly in rural areas.

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But the persistence of high transfer costs raises an important question: if remittances are already one of Africa’s most reliable financial lifelines, how much more powerful could they be if sending money were cheaper? Continued fintech innovation, regulatory reform and increased competition could unlock billions more for households who rely on these flows not for investment portfolios, but for daily survival.

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In the end, remittances are more than just money moving across borders. They are a form of private social protection and a reminder that Africa’s economic resilience is often built not only in boardrooms or government offices, but in the quiet determination of workers sending money home.

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References:

Decoding Impact

Disclaimer: The views and opinions expressed on this blog are my own and do not reflect those of my employer. I blog in my personal capacity, and my content is not affiliated with my workplace.

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