Sub-Saharan Africa

The average cost of sending remittances globally is close to 6%. In Sub-Saharan Africa it averages 9%, with costs as high as 12% in some places. Very few remittance service providers operate in this region. Competition is low and costs are high. The dominant players have adopted business practices that border on being monopolistic. Financial Sector Deepening Africa (FSDA) is a not for profit organization that has been monitoring the situation for a while. The FSDA reports that it is very difficult for a new money transfer operator (MTO) to enter this market. The requirements for obtaining a license to operate in this region are just too high. For example, the applicant would need to have $20 million in capital. It would also have to be operating in at least 7 countries for 10 years or longer before applying.

Causes of high remittance costs

The FSDA categorizes the reasons for high transaction costs under four headings:

• Business case barriers
• Regulatory barriers
• Infrastructure barriers and
• Consumer-facing barriers

Business case barriers consist of outdated and inefficient IT systems, high costs of foreign exchange transactions, and lack of competition among the service providers. Regulatory barriers include the high cost of KYC procedures, the costs of compliance, and the imposition of high remittance taxes. Infrastructure barriers exist primarily in the form of lack of connectivity and shortage of cash in/out points. Finally, consumer barriers are the lack of documentation, lack of trust, long transfer times, and so on.

Regulatory solutions

It is easy to see that the regulatory environment has an impact on issues in all categories. Renowned researcher James Busumtwi suggests some solutions in his book Remittances, Regulation, and Financial Development in Sub-Saharan Africa. These include ideas such as expanding market access and competition, increasing financial inclusion, facilitating technological innovations in financial services, reducing high transaction costs, reducing informal transfers, enhancing accuracy in remittance reporting, and curbing illicit financial flows.

Remittance receiving countries

The IZA – Institute of Labor Economics in Germany suggests ways to address issues from different aspects. Remittance recipient nations often rely on the inflows for GDP growth. Such nations can introduce policies to facilitate the overseas operations of their banks. They should relax their capital controls. One of the simplest and most effective ways to ease remittance flows is to issue identification documents to migrant workers. For example the matrícula consular, aka the Consular Identification (CID) Card is a document which the Mexican government issues to its citizens who reside abroad. The CID is recognized by foreign governments, including the US, as an acceptable form of identification. This facilitates their access to banking services, and lets them send money online with ease.

Recipient countries can also create funding programs that would help invest remittances in their home communities. They can also establish institutions to educate, inform, and orient migrants to improve their well-being in the host country. Measures such as the CID have been instrumental in improving financial literacy and access to credit for asset accumulation and investment. The efficacy of such measures reaches far beyond remittances.

Remittance sending countries

Developed countries are where the vast majority of global remittances originate. These nations can also adapt various mutually beneficial policies and regulations. One case in point is the 1986 US Immigration Reform and Control Act. This policy facilitates the permanent settlement of immigrants. Legalizing the status of migrants enables them to travel back and forth between the home and the host countries. It helps migrants gain access to financial services. This reduces the cost of sending remittances via formal channels, thereby reducing reliance on undocumented channels.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.

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The recent move to cut the repo rate to 6.5% and the lending rate to 10% was initiated after a split decision by the council. SARB governor Lesetja Kganyago commented that the decision was led by inflation forecasts and also noted that the low point of the inflation cycle had possibly been reached.

Inflation has been on a continued downtrend year-on-year with a fall from 5.4% to 3.8% so the cut of 25 basis points may even be too small as the target rate for the SARB is the mid-point of the 3-6% range.

Other important points made by the governor in his post-policy speech were that a looming international trade war could affect inflation and also that the bank saw the Rand as overvalued. Devaluing currencies has been a trend by global central banks however, as they lower the cost of exports abroad. Reducing interest rates is a measure to reduce foreign interest in a currency and its debt, which keeps exports competitive. Inflation also reduces the effects of growing government debts.

Personal loans provider Wonga are committed to improving financial literature and helping people build realistic budgets which are vital when stepping onto the property ladder. Check out their Money Academy and make use of the many free resources.

Further cuts and the outlook for mortgages

If the SARB does see the Rand being overvalued, then it may find itself pushed into further cuts as the steep trend down in inflation may not be eased by a 0.25% cut in rates. Any further cuts will continue to reduce the mortgage payments of those with variable rate mortgages, but it may be advisable to wait for the next few sets of inflation data before considering a new home purchase or locking-in a fixed rate mortgage.

Competition amongst lenders is limited to the following firms: Investec, Standard Bank, FNB, Absa, NED Bank and Capitec; and these lenders will be watching the land reform debates closely. Foreign investors were cautious over the previous reshuffling at the finance ministry and the corruption concerns that followed the Zuma campaign. 

The land reform debate needs to be done in a way that doesn’t erode foreigners’ trust in private property laws that are expected in other foreign countries. A failure to build trust could see mortgage lenders relying on domestic investors only. The big moves seen in the Rand exchange rate would be a consideration for foreign investors when they feel the trend is over. It is important for South Africa to find political stability in order to entice foreign investors and capital.

South Africa has recently seen its GDP forecast lifted by the IMF to 1.5% for the year, and 1.7% for 2019. Business confidence will improve with the election of President Cyril Ramaphosa, so it is important to continue with economic reforms and political stability to see continued improvement.

Image Source: https://tradingeconomics.com/south-africa/inflation-cpi

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1. Make a list: If you are trying to budget better with your groceries, perhaps the worst thing you can do is go out with the intention of buying ‘groceries’. This is because the term ‘groceries’ is rather vague and gives room for buying unnecessary items while in-store. It is, therefore, important to define what exactly you need in terms of groceries. This means making a list of things you need and budgeting accordingly. Specify what food you need, in what quantity and how much you are willing to spend on it. Some go a step further and decide on what brand they will buy ahead of time. That way, your trip to the supermarket is targeted and specific rather than a browse through shops buying whatever catches your eye. 

2. Make use of pre-paid cards: If you find yourself unable to overspend when you go out to buy groceries, you might want to consider pre-paid cards. Pre-paid cards are cards for which a pre-determined amount of money is made available to spend on. No matter how impulsive you find yourself, you cannot spend more than the amount of money you have at hand. Consider getting a pre-paid card and loading your weekly or monthly food budget on it. That way, you are forced to buy only necessary items and prioritize essential foods over impulse buys. These sorts of cards will also prove helpful in teaching young people the importance of money management at an early age. 

3. Pre-order: If you want to create a very strict grocery budget that leaves little space for impulse buys, consider pre-ordering your groceries. Many supermarket chains will allow customers to create a reoccurring ‘basket’ of groceries that are either delivered to their homes or picked up in-store. If you already know the items you will need on a periodic basis, pre-order them from your supermarket and either have them delivered or pick them up. By doing this, you create little room for impulse purchases as you either never have to visit the grocery store or simply go in to pick up your package.  This also comes in handy if you are a busy person who does not always have time to grocery shop or have a very strict diet.

Believe it or not, it is possible to stop impulse buying when you need to buy your groceries. Follow some of the above tips to better budget for groceries. 

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1. Budget Carefully

Keeping a tight reign over your weekly and monthly incomings and outgoings should be a key part of your crisis preparation plan. If you have a good idea of exactly where your money is going, it will make it much easier to identify areas where you can cut back should you begin to feel the pinch.

2. Run a Buffer 

Many people are comfortable with using their credit card or overdraft as a financial security buffer in times of economic prosperity. A much better and more secure way of ensuring that you keep your head above water is to build up a cash reserve that you can draw upon if you suddenly have to fork out for any unforeseen expenses.

3. Shop Around

When your budget is tight, it makes a lot of sense to spend a little more time looking for deals than you might do normally. Check to see if there are any coupons available on the internet before buying as expenses saved on the small things will add up over time. 

4. Pay Back Your Credit Cards

If you owe money on your credit card, now could be a good time to sign up to a cheap fixed-rate repayment scheme. When a crisis hits, the banks can suddenly decide to change their interest rates, leaving you high and dry and unable to keep up with your monthly repayments.

5. Sell High-Risk Stocks and Shares

All stocks and shares represent a certain degree of risk. If you are not prepared for the possibility of losing some money every now and again, then you probably should not be buying them. If you are aware of the risks, however, you will know that certain stocks are much more secure than others. Now is a good time reinvest your money in stocks which have proven to be “recession-proof” in the past (e.g. Walmart or Hasbro Games).

6. Overpay on Your Mortgage Repayments

If you are a first-time buyer with a large mortgage when the bottom suddenly falls out of the property market, you could end up having to pay back a lot more than what your house is worth in the post-crisis real-estate environment. If you start paying back as much as you can now, the impact of a property market collapse on you will be less.

Unfortunately, rough times look like they could be just around the corner. Make sure you keep your finger on the pulse and do not act too late when it comes to taking actions to protect yourself from the risk of financial ruin.

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