The Mugabe administration’s controversial decision to force all citizens to use formal channels for cross-border remittances appears to have paid off, with official remittance inflows to Zimbabwe surging to USD 1 billion in the first quarter of 2019. This marks a substantial increase from the USD 350 million officially recorded in the entire year of 2018, and it’s expected to rise further if informal channels remain closed.
Zimbabwe has come a long way from the hyperinflation crisis of 2008, when the country’s official inflation rate hit 231 million percent. However, new research shows that the country still faces challenges with international remittances, which the central bank is now trying to fix with help from blockchain technology.
Cross-border remittances to Zimbabwe reached $1 billion in 2020, up more than 36% from $636 million in 2019. This increase in remittances has occurred despite a sharp decline in economic activity in host countries, making it more difficult for migrants in the diaspora to send money home.
Impact of the pandemic on remittances
According to the report, this increase relates only to transfers of funds sent through official channels. The same report also attributed this increase to mobility restrictions imposed in response to the spread of the Covid 19 pandemic. The report states:
The increase in remittances may be due to many Zimbabweans living in neighbouring countries such as South Africa, Malawi and Botswana turning to formal channels for remittances due to the impact of the coronavirus pandemic (Covid-19), as travel across international borders was restricted for much of 2020.
Before the blockade, Zimbabweans working abroad used informal remittance channels such as cross-border buses, trucks and private couriers to send money home. However, the closure of border crossing points at the beginning of the second quarter of 2020 has forced migrants to use traditional posting channels.
Unofficial channels are cheaper than
The report also explains why Zimbabweans and other African migrants use informal remittance channels that are vulnerable to theft or fraud. According to the report, migrants prefer informal channels because the (charged) costs are generally lower than those of official remittance offices, making these informal channels more attractive to the diaspora.
As Bitcoin.com News previously reported, Zimbabwe is in the region with the highest cost of money transfer in the world, which could be part of the reason why informal channels remain popular. At the same time, money transfer channels using cryptocurrency rails are gaining in popularity. For example, some Zimbabweans working in South Africa used BTC to send money during the blockade.
Referring to this use of informal or alternative channels by migrants, the report concludes that Zimbabwe’s headline about increasing remittances in 2020 may be a misrepresentation of reality. The report even notes that actual remittances are likely to have decreased from previous years due to the effect of the pandemic.
Do you agree that informal remittances could be higher than formal remittances in Zimbabwe? Tell us what you think in the comments below.
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