Remittances could be defined as funds sent by people or Ghanaians living abroad or in the diaspora to their families and communities in Ghana and many parts of the developing world. It has become a significant part of the country's economic landscape.

This financial lifeline plays a pivotal role in shaping the nation's economic growth, development, and social well-being. In this short piece, we will review the importance of remittances worldwide with a critical emphasis on the effects of remittances on the Ghanaian economy.

World review:

According to the IFAD 2023 report, "Remittances represent a lifeline for millions of families. Over the last 20 years, remittance flows have grown in value five-fold, despite the myriad of adverse events that took place all over the world. The amount of money sent via mobile transfer increased by 65 percent during 2020 to US$12.7 billion and grew again to US$16 billion in 2021.

Over 50 percent of remittances are sent to rural areas, where 75 percent of the world's poor and food-insecure live.

Globally, the accumulated flows to rural areas are expected to reach approximately US$3 trillion over the next five years.

The IFAD 2023 report further states that "Every year on 16 June, the global community observes the International Day of Family Remittances (IDFR) to raise awareness of the hard work and sacrifice of the millions of migrants who support their family members and communities of origin through the money they send back home."

Ghana being a country that benefits greatly from Remittances also celebrates the day.

The IFAD 2023 report further indicated that "A staggering one billion people worldwide – about one in eight – depend on remittances. Every year, 200 million migrant workers send money home, and 800 million people benefit from them.
Even though a pandemic and political instability, remittance flows continued to grow"

According to the latest World Bank data, "Remittances to low - and middle-income countries reached US$647 billion in 2022. That’s a growth of 8 percent compared to 2021 – higher than the World Bank expectations six months ago".

"Migrant workers send on average US$200 to US$300 home every one to two months. This represents only 15 percent of what they earn – the rest stays in their host countries. But what they do send can make up as much as 60 percent of a household’s total income – representing a lifeline for millions of families."

The World Bank further indicates that "Remittance flows to Sub-Saharan Africa grew by 6.1% in 2022 to $53 billion. The trend was largely driven by strong remittance growth in Ghana (12%), Kenya (8.5%), Tanzania (25%), Rwanda (21%), and Uganda (17%). Remittances to Nigeria, accounting for around 38% of the total remittance - inflows to the region, increased by 3.3% to $20.1 billion. Remittance inflows supported the current accounts of several African countries dealing with food insecurity, supply chain disruptions, severe drought (Horn of Africa), floods (Nigeria, Chad, Niger, Burkina Faso, Mali, and Cameroon), and the spread of debt-servicing difficulties. In 2023, growth in remittances is expected to ease to 1.3%. Sending $200 to the region cost on average 8% in the fourth quarter of 2022, up from 7.8% a year ago."

From the above world review, it is therefore crucial to examine the direct benefits of remittances to Ghana.

Benefits of remittances to Ghana:

Economic growth:

According to the latest World Bank Migration and Development report: Brief 36 published in May 2022 indicates that Sub-Saharan Africa received an estimated US$49 billion in remittances in 2021. Owing to its massive diaspora population, Nigeria regularly receives the greatest remittance inflows followed by Ghana, Kenya, and Senegal.

Remittances are a crucial source of foreign exchange earnings for Ghana. These inflows help stabilize the country's balance of payments by increasing foreign reserves. This, in turn, strengthens the local currency, reduces inflationary pressures, and fosters a conducive environment for economic growth.

Poverty alleviation:

According to Doris Dokua Sasu, in her paper published on 2 February 2023
"Personal remittances received in Ghana as a share of GDP 2010-2022" indicates that "personal remittances received in Ghana amounted to 4.7 billion U.S. dollars, increasing slightly from the preceding year."

Hence, remittances provide a safety net for many Ghanaian families, particularly those in rural areas. The funds sent by family members abroad often cover essential expenses such as education, healthcare, and housing. By reducing poverty levels and enhancing living standards, remittances contribute significantly to improving the overall quality of life in Ghana.

Investment in human capital:

Many Ghanaian households use remittances to invest in education and skills development. This investment in human capital has long-term benefits, as it equips individuals with the knowledge and skills needed to secure better job opportunities, contributing to higher incomes and economic advancement.

Entrepreneurship and small businesses:

A significant portion of remittances is channeled into entrepreneurial endeavors and small businesses. This financial infusion supports job creation and economic diversification, ultimately driving economic growth and reducing unemployment rates in Ghana.

Real estate and infrastructure development:

Remittances also play a role in the real estate and infrastructure sectors. Families often use remittances to build or improve homes, contributing to the construction industry's growth. For example, several friends I know in Canada are heavily engaged in housing projects at home, particularly for retirement and investment purposes. Additionally, some remittance recipients invest in critical infrastructure development projects like schools and hospitals that can benefit entire communities.

Financial inclusion:

The rise of digital remittance services and mobile banking has facilitated financial inclusion in Ghana. Remittance recipients are increasingly accessing formal financial services, which can help them save, invest, and access credit more easily. This financial inclusion can have a positive ripple effect on the overall economy.

Challenges and considerations:

While remittances have numerous positive effects on the Ghanaian economy, there are also challenges and considerations:

Dependence risk:

Overreliance on remittances can make the economy vulnerable to fluctuations in the global economy or changes in the remittance flow from Ghanaian diaspora communities. For example, some relatives and close friends so rely on remittances received from family and friends abroad that sometimes lack the initiative to tackle projects on their own. But sometimes too, they genuinely do not have adequate resources to embark on vital projects on their own.

Brain drain:

The migration of skilled workers abroad, although a source of remittances, can also result in a "brain drain" that impacts the nation's ability to retain talent. In Ghana, over the years, several nurses and doctors have left the country for abroad to seek higher training and better employment opportunities.

Informal channels:

A significant portion of remittances still flow through informal channels, which can limit their positive economic impact and pose risks in terms of financial stability. Sometimes, monies are sent to families at home through friends and perhaps are not formally documented or recorded in the formal financial systems.

Conclusion:

In conclusion, remittances are a vital component of the Ghanaian economy and the larger world economy. They contribute to economic growth, poverty reduction, human capital development, and entrepreneurship.

However, Ghana must strike a balance between harnessing the benefits of remittances and reducing dependence on them. Policymakers in Ghana and across the world must also work to promote financial inclusion and regulate remittance flows to maximize their positive impact on the nation's economy and well-being. This is a critical necessity, particularly for nations of the developing world whose economic base is essentially remittance-dependent.