Remittance Flows Connection Woes

Ferezer Yared, 21, was gazing in anticipation at a queue screen at the main branch of the Oromia International Bank (OIB), located in the Senga Tera area of Ras Abebe Aregay Street, on Tuesday, December 31, 2013.

He was waiting to collect 200 dollars sent to him for the Christmas holiday by an uncle living in Seattle, US.

He is among the 39pc of Ethiopians with relatives abroad, according to a sample survey by the World Bank (WB) published in 2010. Out of these, 18pc are regular remittance recipients, with an average sum of 120 dollars received at least five times a year, according to the survey.

Although, according to the WB, many of the remittances sent to Ethiopia flow through informal channels, they have contributed to an average of 1.3pc of the country’s Gross Domestic Product (GDP) over the last 30 years. Between 1977 and 2003, remittance flows have grown steadily – from four million dollars to 46 million dollars a year. After this, the growth climbed sharply towards 172 million dollars and 300 million dollars, in the years 2007 and 2010, respectively.

Various researches note that despite its large migrant population, Ethiopia has not fully realised its potential. The current flow of remittance to Ethiopia is only one-sixth of its potential.

When reviewing the performance of export earnings and remittance inflows – the major contributors to the national foreign exchange reserve – over the last three years, the foreign exchange earned from remittances is growing in leaps and bounds, catching up with export earnings.

Export earnings, which recorded 2.7 billion dollars in the 2010/11 fiscal year, increased to 3.1 billion dollars in the 2011/12 – a 15pc increment. The 3.08 billion dollars registered in the 2012/13 fiscal year was 77pc of the planned four billion dollars.

However, considering the estimated one million Ethiopian migrants, the achievement is far from the potential the sector holds. According to the WB, close to two billion dollars is estimated to be transferred using informal channels.

Unfortunately, Ferezer lost his beloved mother and father two years ago. Currently, he is living with his aunt, using the money his uncle sends from abroad.

“My uncle always worries about me and my aunt,” he said. “He does not want to see us without meat and other things, which are necessary to celebrate the holiday.”

The foods enjoyed during the Ethiopian Christmas season include chicken stew (doro wat) – a thick, spicy stew of meat, and sometimes eggs as well. So, people need to purchase a chicken, which costs between 110 Br and 150 Br, or a sheep at between 500 to 3,000 Br.

The OIB, which works with 11 Money Transfer Operators (MTOs), was witnessing larger than usual queues at its branches. Most of those approached by Fortune in the queue at the main branch on Tuesday said they were waiting to withdraw money that had been sent by relatives living abroad.

“This is our peak season to deliver remittance, since it’s a holiday season,” says Neway Megersa, director of the Planning & Business Development Department at the Bank.

While all banks in Ethiopia work with MTOs, Western Union, MoneyGram and Xpress Money are the prominent actors bringing large sums of remittance into the country.

The total remittances sent to Ethiopia has dramatically increased. According to available data from the WB, 513 and 524 million dollars were sent to Ethiopia in 2011 and 2012, respectively.

The two percent that remittances contribute to Ethiopia’s GDP is, however, far lower than Kenya’s three percent, Uganda’s six percent and Sudan’s one percent. Most of the remittance recipients in Ethiopia are individuals, such as Ferezer, living in urban areas and aged between 25 and 34 years old. Out of these, 65pc are women.

Makeya Ali, 26, is nursing student at the Central Medical College. A Somali who has been in collage for three years, Makeya lives in a rented house that costs her 900 Br. On top of this, she also has to cover her school fees.

“My brother, who lives in Toronto, Canada, regularly sends me money to cover my school, transportation, food and house costs,” says Mekaya

Fortune observed that the majority of young Somali and Djiboutian students learning in private universities and colleges in Ethiopia are living by the remittances they receive from relatives living abroad. Some of these foreign students select to use the official channels, while others select unofficial channels – resorting to the parallel market.

“Why should I suffer through network failure and long queues at the banks, when I have an alternative avenue to use?” Asks another college student, who spoke on condition of anonymity. “There are well known traders that frequently travel the US-Ethiopia route, so most of the time I receive my remittance from them.”

The bank branch location determines the amount of remittance that is to be collected. For instance, the customer queue is quite different around the Bole Michal area, where the residents are predominantly Somali immigrants.

A sizable proportion of transferred money finds its way into the market through informal channels, according to a 2011 study by Alemayew Geda (Prof), a lecturer at the Addis Abeba University. This, according to the study, is mainly attributable to lower costs and a lack of awareness about the formal options.

However, the National Bank of Ethiopia (NBE) does not have an accurate figure for remittance flows in the informal channels or in the underground economy.

People seeking to withdraw money sent to them from abroad stood in a long queue on January 1, 2013, at the Ayer Amba Branch of the Commercial Bank of Ethiopia (CBE) located in Bole Michael area.

Next to Bole Michael, the Hayahulet area also has large numbers of Somali and Djiboutian people seeking remittance money.

People, nevertheless, continue to complain about the availability of connection at the banks. For instance, remittance recipients around the Jemmo area in Lafto District complain about the poor connections they often face when attempting to withdraw remittance sent to them by their relatives.

“On the eve of the last Ethiopian new year, I visited one of the private banks with a secret code sent by my cousin in Canada,” says Tigist Belete, who lives on remittance money and went to the CBE branch at the German Adebabay area in Lafto District. “Unfortunately, the teller told me that the connection was down, so he couldn’t deliver my remittance.”

Tigist was worried that she might not be forced to spend the holiday empty-handed. After heading to another branch, however, she did eventually manage to receive the remittance money.

Although stranded by poor connections, people like Tigist still hope that they will receive their money prior to the holiday.

“I’ll have to wait, since I have no other choice,” says Tigist, although she was visibly frustrated.


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