How can Africa make the most of its huge diaspora?

In Nigeria, the Yoruba word “japa” – to run away – has come to mean leaving the West African powerhouse in search of opportunities abroad. Nigerians use it a lot.

An estimated 17m of them today form the country’s vast diaspora, according to the Nigerians in Diaspora Commission (NiDCOM), established under the Federal Ministry of Foreign Affairs. They are working, setting up businesses and studying in the US, Canada, the UK, the Gulf and elsewhere. Alongside Kenyans, Ethiopians, Ghanaians and others of African origin they have been dubbed the continent’s “secret weapon”.

So large and important is Africa’s diaspora that the African Union officially declared it the continent’s “sixth region” after East, West, North, Central and South. In Nigeria “japa” regularly trends on social media.

Economic potential

How great, though, is the diaspora’s true economic impact? And does it help African countries integrate into the global economy, or does it hold development back?

Analysts and economists reckon the diaspora exerts a mixed influence on African economies – but with better governance, deregulation and greater stability, the hundreds of millions of Africans toiling abroad could fuel a development boom of truly epic proportions.

 “It’s on the political leaders just not creating the environment for innovation and talent to grow,” says Iyore James, a Nigerian-American doctor who heads the US-based Nigerian Physician Advocacy Group. Born in the US, she was raised in Nigeria and returned to America at 16 to attend university. Now 42, James says many in the diaspora have mixed feelings.

“Some people have just given up hope of any development happening and more and more want to get their family members to migrate,” she says. “And then you have those who still believe in some sort of change in leadership and these people actually go back, invest their time to create businesses and create jobs.”

It is estimated that around 70,000 skilled professionals emigrate from Africa each year across a plethora of sectors, stretching weak healthcare systems, forcing employers into an exhausting pattern of continual recruitment and worsening services from banking to technology.

The trend is not new. The African diaspora in the US skyrocketed from 80,000 in 1970 to over 2m in 2015, according to the Pew Research Center. Adding their US-born children more than doubles the total. Nigerians lead the pack, with 327,000 Nigerian-born US residents in 2015, followed by Ethiopians, Egyptians, Ghanaians and Kenyans.

The UK issued 65,929 student visas and 15,772 work visas to Nigerians in the 12 months to June 2022, a massive annual surge on both counts. In Canada, Nigerians were the third-largest group granted permanent residency in 2021. These flows are not expected to end any time soon, with galloping inflation and hobbled African currencies hitting the salaries of professionals in Kenya, Nigeria and elsewhere and insecurity, poor education and healthcare – as well as dissatisfaction in political leaders.

Indeed, African migrants are on average better educated than the US-born and wider immigrant population. They are also relatively wealthy and increasingly influential. While Donald Trump insulted the continent, the Biden administration contains a record number of diaspora Africans. The director general of the World Trade Organization, Ngozi Okonjo-Iweala, is a proud Nigerian-American.

The remittance question

The clearest impact of Africans abroad comes in the form of the personal remittances they send to the continent, which dwarf foreign direct investment.

In 2019, Africa received $82.7bn in personal remittances, nearly double foreign direct investment (FDI) flows of $46bn. Remittances to Nigeria alone were $23.8bn compared to $3bn in FDI. Egypt saw remittances worth $26bn. Those are just the formal, countable remittances. For war-torn Somalia, where conflict, insurgency and drought have choked growth for decades, funds sent from overseas are thought to represent more than a quarter of annual GDP, although data is hard to come by.

 These payments provide a financial crutch to millions of households. This is why smaller, poorer and more fragile economies are so dependent on them.  Africa’s top remittance recipients as a proportion of their economies are South Sudan, Lesotho and The Gambia with 35%, 21% and 15% of GDP respectively coming from remittances, according to World Bank statistics. Between 2004 and 2017, remittances as a share of GDP grew from 1% to 7.5% in Ghana.

“Nigeria would have recorded a current account deficit if remittances had been lower by just 27%” in 2021, says Francois Conradie, politics and economics lead at Oxford Economics Africa.

“Remittances from the diaspora constitute one of the major sources of revenue in many African countries. Unlike foreign direct investment flows, remittances directly reach the most vulnerable and are less likely to end up in the pockets of corrupt officials,” says Aleix Montana, Africa analyst at Verisk Maplecroft, a risk intelligence company.

Across sub-Saharan Africa, where farming supports at least 50% of livelihoods, remittances supplement agricultural incomes. They diversify income sources in African households and allow recipients to invest in health and education, lowering their exposure to food insecurity and poverty.

“In periods of crisis, remittances play a key role in protecting vulnerable communities where governments fall short,” says Montana.

Such a crisis emerged when the coronavirus pandemic hit in 2020, fuelling concerns that African economies are over-reliant on personal remittances. Covid-19 torpedoed wages and employment for millions of migrant workers, particularly those working in restaurants, hotels and retail in developed countries amid lockdowns.

In the countries sending most remittances – the US, UK, Saudi Arabia, UAE, Germany, France, Switzerland and Italy – commerce ground to a halt. The consequences were a dip in food security for Africa’s poorest, particularly those already struggling.

For some, unsafe working conditions

The pandemic also shone a light on the often unsafe working conditions for foreign workers in the Middle East and elsewhere. Kenya’s government plans to build safehouses in Saudi Arabia, a minister said earlier this year, amid a worrying rise in the deaths of Kenyan migrant workers in the Kingdom.

Experts say that during the pandemic remittance flows showed themselves to be a volatile source of foreign funds. Beyond job losses, weak oil prices affected remittances to Africa from the Gulf, although Russia’s war in Ukraine has now strengthened commodity prices.

Olusiji Sanya, CFO of Tranzfar, a UK-based remittances platform, says, however, that its client base quadrupled during the pandemic – as members of the diaspora rushed to support faraway family members. The company, which lowered its fees to accommodate them, has grown in five years to offer 1,000 payment corridors to 20,000 users and will soon expand into multi-currency bank accounts.

While remittances did dip during the pandemic, they suffered a smaller decline than FDI flows.

“In 2020 we saw just how important remittances can be for Africa,” says Jacques Nel, head of Africa Macro at Oxford Economics Africa. “A lot of fiscal and monetary stimulus in advanced economies found its way to Africa through remittances, and this at a time when African governments were much more constrained in their ability to support their economies. These inflows played a salient role in shoring up consumer spending and I suspect in many cases supporting livelihoods.”

Reginald Kadzutu, chief executive of Amana Capital in Nairobi, says that 80% to 90% of remittances fund consumption rather than long-term growth or investment. “This means we have consumption funded by an external stimulus and not growth in income in the local country. The danger of this is that the country will suffer from stagnant or no growth in savings and hence a lack of local capital for investment.”

Countries in this situation tend to have lower productivity and higher imports, Kadzutu says, denting the current account balance and weakening foreign reserves.

The pros and cons of a vibrant diaspora

If remittances are a mixed bag, other diaspora impacts are overwhelmingly positive. Those who can be lured back to Africa return with world-class education and professional experience. As ambassadors for Africa in developed countries, the diaspora has a role to play in combating climate change, deepening trade ties, boosting investment in the continent, promoting regional security and advocating for democracy.

In countries where their numbers give them a meaningful political say, such as the US and UK, they can influence domestic politics and boost relationships between Africa and the West. In a sign of the changing times, US President Biden released an “agenda for the African diaspora” during the 2020 presidential election campaign, vowing to boost engagement in Africa and reverse Trump’s “inhumane immigration policies”.

 On the other side of the ledger, African politicians are increasingly courting diaspora communities abroad come election time. Prior to Kenya’s hotly-contested August poll, eventual winner William Ruto praised diaspora communities during trips to the UK and US.

Meanwhile in April West African activists in the US helped convince the Biden administration to hand work permits to thousands of Cameroonians amid worsening violence in the country. The Ethiopian diaspora in western countries have been active campaigners amid a worsening conflict in the embattled Tigray region.

 Finally, the diaspora and their children in wealthy countries represent a vital source of tourism revenue for African countries. For nations such as Ghana, Kenya, South Africa, Uganda and Tanzania, tourism is a pivotal growth sector.

Losing the continent’s most talented

The negative effects of brain drain and the endless loss of human capital, however, are unavoidable and, according to many analysts, outweigh the positive impact of remittances.

“On balance, we consider that brain drain is a net negative for Africa: the continent loses skills as its most talented children emigrate, which, all other things being equal, has a negative impact on productivity, competitiveness and employment. On measures of human capital, Africa is behind other continents, and the emigration of talented people contributes to this,” says Conradie.

According to a recent survey by the Nigerian Association of Resident Doctors (NARD), nearly 800 doctors have already departed in 2022, and 85% of its leadership plan to leave. The consequence of that is hours-long waits at Nigerian hospitals, severe burnout among the remaining doctors and lower quality of care.

Meanwhile, businesses set up by members of the diaspora overseas and wealthy diaspora members pay tax in their new countries, rather than their countries of origin, denying exchequers a vital source of revenue.

‘Fear has gripped the private sector’

Amid waves of migration of Africa’s talented professionals, entrepreneurs and businesses are left to deal with the resulting disruptions. In markets already facing talent shortages, businesses have to devise innovative solutions to retain staff and fill gaps and constantly recruit amid frequent staff turnover.

“Fear has gripped the private sector, especially the services and technology space, following the mass resignation of skilled workforce to seek greener pastures abroad,” Adeyemi Adepetun and Gloria Nwafor recently wrote in Nigeria’s The Guardian.

In Lagos, Yellow Card Financial, a cryptocurrency exchange, has started offering stock options and pay in dollars rather than the chronically-weak Nigerian naira, in a desperate bid to hold onto staff. A banking industry group in the country last month released a report on ways to retain workers.

Nigeria’s population is expected to rise to 300m by 2036 and by 2050 every fourth child born globally will be Nigerian, meaning there will be no shortage of labour. But training and upskilling will need to match the rate of departures if Nigeria’s economy is to grow. Experts say that is improbable as long as the country’s education sector stagnates.

Since February, university students have been out of class amid a nationwide strike by frustrated academic staff. Education is just one area where governments must implement strategies to end the depletion of human capital for future productivity and wealth creation.

Reforms are needed

Ensuring that the diaspora and their remittances boost growth prospects in African countries will require government reforms, analysts say. A good starting point would be to reduce the cost of sending money to Africa. In 2020, sub-Saharan Africa had the highest average remittance costs in the world at about 9%, which is nearly three times the target laid out in the Sustainable Development Goals.

Lowering the burden by making it easier for remittance providers to partner with banks and telecommunications firms would boost payments to families and remittances in the form of development financing. The aim, experts say, should be to mobilise diaspora remittances to invest in key industries.

“There is a way you can guide remittances to stimulate certain sectors of the economy,” says Sanya, who was born in Nigeria and moved to Britain at 21. Forward-thinking policymakers, he says, could “create property funds, health funds, agriculture, manufacturing, education, tourism,” into which remittances could be directed. “They can make their countries safer and allow [diaspora members] to come back and explore.”

The problem, Sanya adds, is that policymakers and central bankers often do not want to hear ideas about deregulation, particularly when it comes to their closely-managed currencies. “Until structural changes are done in a systematic fashion, those changes are not around the corner,” he says.

 “Technology advancements can help bridge the distance and engage high-skilled individuals familiar with the socioeconomic context in Africa,” says Montana. “Most remittances are done informally, and transfers go unrecorded. Improving access to formal alternatives such as online transfers may encourage participation in the domestic financial system.”

 In addition, African governments need to enact governance reforms to entice successful members of the diaspora to return.

A recent survey by the World Bank found that 60% of African professionals in the banking, manufacturing and technology sectors would consider returning to their countries of origin if judicial and regulatory systems were more predictable. Yet in a Gallup poll in 2013, fewer than half of sub-Saharan Africans expressed confidence in their countries’ judicial systems.

Returning filled with hope

Simplifying business regulations and tax codes and striving for political and economic stability would promote entrepreneurialism, experts say, and encourage African entrepreneurs to set up businesses in their home countries.

In the early 2000s, for instance, following Nigeria’s transition from military dictatorship to civilian rule, many Nigerians returned to the country filled with hope. In recent years, Ghana has trimmed the process of registering a business from 12 steps taking 81 days to 8 steps taking 33 days and as a result has shot up the global  rankings for ease of starting a business.

Analysts say that until significant reforms are put in place and remittance flows are directed into long-term growth opportunities, the diaspora will remain a net negative for fragile African economies. It falls to governments to build robust economies that celebrate the continent’s human capital and allow talented people to thrive, because Africa cannot rely on exporting its talented people overseas to send money home.

“If there was room for innovation and if things worked in a consistent way, a lot of people wouldn’t leave and there would be room to grow the economy,” says James, who remits occasionally and runs an NGO in Nigeria. “But because people don’t find that environment, they look for greener pastures.”