After enduring the debilitating effects of brain drain for many years, Zimbabwe has begun profiting from human capital flight as diaspora remittances shore up liquidity in the cash-short economy.
Official numbers from the Reserve Bank of Zimbabwe indicate that, since the introduction of multiple currencies in 2009, diaspora remittances have become the country’s second-largest source of liquidity, accounting for 29% of the country’s liquidity, after exports, which contribute over 59%.
The stock of diaspora remittances has risen steadily from 2009, when it contributed only $300m to the economy, before leaping by 37% to $403m in 2010, $552m in 2011, and $837m by 2014.
In 2015, remittances peaked to $935m, overshadowing traditional lead sources such as foreign direct investment.
But, in spite of their new-found importance to the economy, the dollar-dominated value of diaspora remittances waned during the first six months of 2016, amounting to only $387.9m, compared to $457.8m received during the corresponding period in 2015.
Both fiscal and monetary authorities blame the 15% decline in the value of remittances mainly on rapid currency depreciation in source markets, especially South Africa – a significant source of foreign currency for the country in the last few years.
In his September mid-term fiscal statement, finance and economic development minister Patrick Chinamasa said the decline in the value of diaspora remittance was also influenced by the increased use of informal transfer channels.
“This development has, therefore, affected general market liquidity in the economy, with an adverse effect on aggregate demand and sustained economic recovery,” he noted.
The International Organisation for Migration (IOM) estimates that there are between 500,000 and 3 million diasporans, with the majority living in South Africa and Britain.
Having realised the critical role of diaspora remittances to the economy, government has introduced new measures to enhance remittance inflows.
One such measure – which became operational this month – is a 5% export incentive scheme for all diaspora remittances, including private, unrequited transfer funds remitted to Zimbabwe through banking channels.
Assisted by the IOM, the Zimbabwean government also launched the National Diaspora Policy in June to catalyse the flow of remittances through the formal financial system.
IOM helped the government to establish the National Diaspora Directorate, which is responsible for operationalising the policy, and to hold diaspora consultative meetings in the UK, Canada, and South Africa, as well as touring Ethiopia, a country that is held up as Africa’s best practice in diaspora remittances.
The world over, there is growing recognition that migration and diaspora resources – if managed properly – can positively contribute to national development, by facilitating increased trade and investment.
Finance and economic expert Persistence Gwanyanya says the new trend has largely been influenced by the recovery of the global economy from an ominous meltdown; improved domestic political affairs during the government of national unity; and the declining spectre of development finance.
“Diaspora remittances are going to continue contributing a significant amount of liquidity to the economy (compared to development finance) because of the re-balancing of the global economy.
“Developmental finance has been a key driver of liquidity into Africa, and African economies will continue to expect huge inflows, but in reality that’s not going to happen. It is one factor of a new normal economy – not as much development finance will flow out of the West as before. So diaspora remittances will continue to dominate, despite a decline in value,” Gwanyanya explains.
Banker Edmund Nakamba says that, while tapping into the diaspora market is a noble initiative, the lack of a clearly laid out strategy for the mobilised funds will clutter the process.
“Very few people trust the current government with their money. Hence, in the absence of a clear strategy, goals and purpose for the funds, there is a real high risk that the funds generated will be used for consumptive purposes,” he notes.
Gwanyanya says that the impending introduction of bond notes and mistrust between government and the investing public could hurt a heightened flow of remittances.
“The contract of trust between the investing public and government is no longer there. It’s a major issue, especially coming from a past where people have lost their monies, and certainly it is a huge deterrent to an effective diaspora and remittance system that enables the people to send money back home the way they would want,” he says.
“The issue of bond notes is also inadequate to build the required trust for a vibrant financial services sector.”