Although a lot of the remittances sent to Ethiopia flows through innformal channels, the amount received by 14% of adults accounted for eight per cent of the gross domestic product (GDP), at current market prices, in 2008/09.
The amount received by this 14%, comprising people who are aged between 18 years and 65 years, amounted to 3.2 billion dollars a year, according to a survey which was conducted for the first time in Ethiopia by the WB. On average, each person received 600 dollars annually, which was sent to them five times a year.
There are around 37 million adults in Ethiopia, according to the 2007 census.
Remittance flows represent a significant share of the national income and foreign currency earnings for Ethiopia, said Benjamin Musuku, WB Africa Region Payment System specialist, speaking recently at the “Future of African Remittance Program” initiative that was held in Addis Ababa.
Globally, international remittances totaled 414 billion dollars in 2009, of which 316 billion dollars went to developing countries, involving around 192 million migrants or three per cent of the world population, according to a recent WB estimate.
Despite significant amounts of remittance flowing through formal channels, a great deal of money makes its way into Ethiopia through informal channels, according to the survey.
In order to touch this money, policy makers and remittance service providers should play an active and supportive role to increase the development impact of remittance by facilitating formal remittance flows, thereby reducing the cost of remittance transfers, according to Donald F. Terry, financial expert at the WB.
The cost of sending and receiving remittance in Ethiopia is higher than the rest of the world, which is around 10% of the transfer amount, a study conducted by Western Union has revealed.
To lower the high transaction costs, the WB has launched the “Future African Remittance (FAR)” program, which intends to enhance competition and financial innovation in the Ethiopian remittance market.
Under the FAR programme, the WB is expanding its efforts in Ethiopia to assist the government and remittance service providers to realize the development impact of remittances. The program will act as a collaborative platform for enhancing and focusing complementary efforts on the issue of remittances.
The FAR program will also facilitate the exchange of best practices among participating countries by creating a forum for technical discussion and examination of innovative technologies, regulatory developments, and improved data collection on remittance.
The program sets a goal to reduce the cost of sending and receiving by five per cent and increase remittance through formal channels by 20% in 2015.
Commercial Bank of Ethiopia (CBE), state owned and the biggest bank, plans to increase the remittance that is sent through it by 40% this year. To this end, it had stopped charging commission on Western Union transfers that are sent through its branches.
The result of the national survey and FAR programme was made public in the joint conference held by the WB and National Bank of Ethiopia (NBE) on October 27.
The conference, held in Addis Ababa, following a similar initiative in Kenya, intended to disseminate the survey results and launch country specific initiatives to improve competition and foster technological innovation, according to Benjamin.
“The program started in May 2010 with engagement in Ethiopia, Kenya, and Uganda and plans to expand to an additional five Sub-Saharan African countries in 2011,” he said.
The conference brought together nearly 50 participants comprising policy and decision makers from Ministry of Finance and Economic Development (MoFED), NBE, commercial banks, and non-bank financial institutions.