"Super tax" on African remittances hurts development - thinktank

Wed Apr 16, 2014 11:29am EDT

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LONDON, April 16 (Thomson Reuters Foundation) - Africans face the highest remittance fees globally, regularly paying a "super tax" to send money home at a cost that hurts families and holds back development in the world's poorest continent, a thinktank said on Wednesday.

The London-based Overseas Development Institute (ODI) said reducing remittance charges to global average levels would generate $1.8 billion, enough to put 14 million children through primary school, or provide clean water to 21 million people.

The average cost to transfer $200 to sub-Saharan Africa was about 12 percent, compared with a global average of 7.8 percent, ODI said in its report, "Lost in intermediation", branding the higher fees a "super tax".

"This remittance super tax is diverting resources that families need to invest in education, health and a better future," said the report's co-author, Kevin Watkins.

"It is undercutting a vital lifeline to hundreds of thousands of poor families in Africa. Africans living in the UK make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and internet transfers," Watkins said in a statement.

Weak competition, "exclusivity agreements" between money transfer operators, agents and banks, and flawed financial regulation contributed to pushing charges higher, ODI said.

The institute said two money transfer operators - Western Union and MoneyGram - accounted for two thirds of remittance transfers to Africa.

Western Union said the average global revenue it earned from transferring money was 5-6 percent of the amount sent.

"However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies," it said in a statement.

There was no fee for money transferred online from Britain for a cash payout in Africa when done through the sender's bank account, it said.

Officials from MoneyGram were not immediately available for comment.

In 2013, remittances to Africa were valued at $32 billion or around 2 percent of gross domestic product. In 2016, they are projected to rise to more than $41 billion, ODI said.

"With aid set to stagnate, remittances are set to emerge as an increasingly important source of external finance," it said.

The ODI said there was no evidence of a fall in fees for Africa's diaspora, even though governments from the G8 and G20 have pledged to reduce charges to 5 percent.

It can be even more expensive to transfer money within Africa. For example, migrant workers from Mozambique pay charges as high as 20 percent to send savings home from South Africa, the report said.

ODI called for an investigation of global money transfer operators by European Union and U.S. anti-trust bodies and regulatory reform in Africa to revoke exclusivity deals between money transfer operators and banks and agents. (Thomson Reuters Foundation, the charitable arm of Thomson Reuters, covers underreported humanitarian, human rights, corruption and climate change issues. Visit www.trust.org; Editing by Alison Williams)

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