Harare – The Reserve Bank of Zimbabwe has reported that remittances to Zimbabwe from the diaspora in the first five months of 2021 were US$527 million, a significant 82% increase from the US$289 million sent in the same period in 2020.
This represents an average of US$105.4 million received by the country every month and poises this year to break the US$1 billion remittance record set in the whole of last year.
According to reserve bank governor, John Mangudya, these massive receipts have positioned remittances as the second foremost earner of foreign currency for Zimbabwe topped only by revenue earned from the exporting Platinum Group Metals (PGMs).
Even more interesting is that according to Zimbabwe Statistics Agency (ZIMSTAT) PGMs only managed to reel in US$228 million in revenue in the first quarter of 2021, meaning that on average remittances were the biggest earner of foreign currency in the period as the aforementioned monthly average translates to quarterly receipts of US$316.2 million, US$88 million more than PGMs.
This high level of remittances is largely accredited to the COVID-19 pandemic which encouraged the use of more formal channels in remitting and is important for the growth of the economy as it scales up the supply of desperately needed foreign currency which in turn works to stabilize the local currency.
Remittances have also become very important in the alleviation of poverty in the country seeing as how most people’s salaries, especially civil servants, keep them barely above the poverty lines leaving them in need of a financial crutch often provided by family and friends abroad.
The average salary of a civil servant in Zimbabwe is around ZW$20 000 per month while the Food Poverty Line (FPL) for a family of five was ZW$20 695 in May and the Total Consumption Poverty Line (TCPL) was ZW$27 855.
So how is the large number of seemingly all good remittances negative?
Firstly, high diaspora remittances are testament of economic decay which has led to a massive exodus of human capital which, if the situation was better would have been employed locally and working in domestic production.
The total number of Zimbabweans worldwide is estimated to be between 20 and 22 million of which over 5 million or about 25% are in the diaspora. This therefore means that the smaller part of the Zimbabwean population in the diaspora is producing and doing way more for the economy than the larger domestic population.
Secondly, the flow of diaspora remittances is too volatile and authorities have no direct control over them making the country more susceptible to external fluctuations.
What does that mean? Take for example there are between 2 and 4 million Zimbabweans living and working in South Africa and remitting money back home almost daily. This means any effective change in the economy of South Africa like the ongoing strengthening of COVID-19 lockdowns will have a direct effect on the performance of the Zimbabwean economy as the Zimbabweans there may not be able to work, earn and send back as much.
For Zimbabwe, high remittances also water the parallel or black market. At ZW$85: US$1 the formal rate is overvalued so those who get foreign currency from outside will mostly use it in the informal market where the rate is much higher or go change the money in the black market at a better rate for the local currency before proceeding to purchase in formal stores.
This increases the informalisation of the economy which is already at 60%.
While nothing can be done about the remittances, they are a wake up call to government to increase productivity in other sectors of the economy like agriculture and gold mining.
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