SHILUBA MAWELA and LERATO LEPHOLLETSE: Leveraging billions flowing into Africa to transform continent’s economic narrative

Over 30-million African expatriates live outside their country of birth, constituting the African diaspora. These expatriates collectively send sizeable sums of money back home to their families, where it is used to drive positive change and sustainable development across the continent by supporting families, funding businesses, investing in land and property, educating communities and for subsistence.

Up to $100bn flows to the continent annually in the form of such “diaspora remittances”. Egypt, Nigeria, Ghana, Kenya and Senegal top the list. According to a World Bank report, diaspora remittances are the biggest source of finance for many low-to-medium-income countries about the globe, accounting for up to $647bn in 2022.

Lebanon and Tonga lead the world in remittances as a percentage of GDP, with figures of 53.8% and 43.9% respectively. Five African nations also rank among the top recipients. Gambia, South Sudan, Lesotho and Somalia are particularly reliant, with remittances exceeding 20% of their GDP.

Remittance inflows to Africa have doubled over the past decade, surpassing foreign direct investment (FDI) and official development assistance (ODI) in Africa combined, according to UN and World Bank reports. A myriad global challenges have caused donors to reduce or redirect their giving, while the doubling of remittances has been attributed to the rise in natural disasters leading to food insecurities, Covid-19 and surging inflation.

ODI amounted to $53.5bn and FDI $45bn in 2022, relative to a surge in diaspora remittances, which are expected to exceed $100bn in 2024. African Development Bank president Akinwumi Adesina noted: “The African diaspora has become the largest financier of Africa.” This presents an opportunity to leverage the inflows and change the narrative that Africa is reliant on FDI, when evidently the Global South seems to be taking care of itself.

Alternative forms of investment

Africa needs to explore alternative forms of investment to fund its increasing developmental needs. One alternative could be diaspora bonds — debt instruments issued by a homeland sovereign country to raise funds by placing them among its diaspora population instead of borrowing from the international capital market or other lenders. Diaspora bonds hold great potential for raising funds for development. Their cost is generally lower because the investors are motivated more by the patriotic zeal to contribute to their home countries’ development than by pure profitmaking motives.

In 2017, the Nigerian government successfully issued a diaspora bond to raise $300m to fund infrastructure projects, which was oversubscribed by 130%. Many developing countries, including Sri Lanka, India, Bangladesh, Pakistan, Lebanon and the Philippines, have issued successful diaspora bonds for development. Other African countries, including Egypt, Kenya, Ethiopia and Ghana, have followed suit, but with disappointing outcomes. Reasons for the failures include the high cost of remittances, the perception of sovereign and foreign currency risk, the ability to manage the technical or administrative requirements for marketing diaspora bonds overseas, and the robustness of the recipient country’s financial sector and economy.

Another form of funding for the continent could be the use of collective savings groupings. The continent already has a rich history of indigenous monetary systems and mutual aid and support networks. One example is the SA stokvel, of which there are estimated to be about 820,000 totalling R50bn, according to the National Stokvel Association of SA. Stokvels and their global equivalents not only encourage saving and investment into local communities, but provide a platform for mostly women across the income spectrum to participate economically.

The World Bank’s Global Findex Database 2021 estimates that 40% of the adult population in Sub-Saharan Africa saves through Stokvel-like informal savings clubs, which are known as chilimba in Zambia, tontines in central Africa, susus in West Africa and chamas in Swahili-speaking East Africa. These collective savings and investment clubs vary in fund size, legal structure, number of members and fund usage, but the pooled funds could be leveraged to make investments and spur development.

TransCentury, the largest investment group in Kenya, traces its roots to collective investment. It was started by a collective of just less than 30 friends who pooled a total of 24-million Kenyan shillings ($186,400) to make investments. The company later transitioned into a private equity firm and then into a listed infrastructure investment firm with a presence in East, Central and Southern Africa.

New story 

The system of chamas and tontines has the potential to evolve to maximise economic impact and position women as financial market drivers. WIC Capital and Women’s Investment Portfolio Holdings are examples of African female-led organisations in the formal financial market. WIC was launched by over 90 women who contributed more than €1m of their personal savings and secured more than €4m in funding from domestic and foreign partners. The funds have been invested in the regional stock exchange and local entrepreneurs. Similarly, we manage allocations from two female angel groups that combine their monthly contributions to invest in small and growing businesses with a gender lens.

These different kinds of investment approaches and initiatives demonstrate the organic and alternative ways Africans are exercising the collective spirit of ubuntu (I am because we are) towards catalysing transformative community development. Africa is often viewed with a narrow lens, which fails to acknowledge the innovative community-controlled ways in which capital is flowing into the continent or how it can be harnessed more effectively.

Be it through remittances, stokvels or diaspora bonds, we see clear evidence that Africans are capable and willing to invest in themselves and others.

• Mawela is managing partner, and Lepholletse a junior impact investment analyst, at advisory and fund management firm Tshiamo Impact Partners. Tshiamo has been assisting the Bertha Centre for Social Innovation & Entrepreneurship at the University of Cape Town Graduate School of Business in convening its Impact Investing in Africa executive programme.