Sarah Truen and Stephen Chisadza

South Africa is a hub of economic activity in the SADC region, and many migrants move to South Africa in search of a better opportunities and a better life for themselves and their families. The money and goods that these migrants send to their countries of origin are an important source of income for many households in those countries, but for undocumented migrants in particular, there are few formal options to get money home. As a result, migrants often rely on informal channels, such as sending money via taxi drivers, which take an unpredictable amount of time, are fairly expensive, and sometimes result in the loss of funds.

South Africa’s immigration laws make little provision for the lawful immigration of low and unskilled workers, so the bulk of unskilled migrants are also undocumented. A recent study (“The South Africa-SADC Remittance Channel”) on the SADC remittance market conducted by DNA Economics for the FinMark Trust found that, of an estimated 3.3 million SADC migrants living in South Africa, approximately 2.2 million are undocumented. Access to formal financial services for these undocumented migrants is hindered by South Africa’s financial sector regulations, which require bank account holders to provide a formal proof of residence status. These documentary requirements may also be too onerous, even for documented migrants that have to produce these documents for each international transaction. As a result, approximately R7.6 billion is sent from South Africa into SADC via informal channels per year. This comprises the majority of an estimated R11.2 billion annual remittance market.

Zimbabwean migrants make up the bulk of undocumented and illegal SADC migrants, as well as total SADC migrants (approximately 1.9 million of the total SADC migrant population in South Africa of 3.3 million). Although many of the recent Zimbabwean immigrants are poor, and earn very little, research suggests that they remit frequently and heavily. The DNA study for FinMark Trust found that R5.5 – 7.9 billion is remitted from South Africa to Zimbabwe annually, making this one of the main sources of foreign currency inflows for Zimbabwe.

Regardless of whether the money is remitted through formal or informal channels, cross border remittances from South Africa to the SADC remain relatively expensive. Research by the World Bank suggests that Southern Africa has some of the most expensive formal remittance channels in the World, with charges amounting to around 20% of the remitted amount. The cost of informal channels is likely to be even more expensive, and for most low income migrants, the only option available to them. The formalisation of the remittance market would go some way to benefiting both the remitters and the regional macro economy, but existing market and regulatory barriers might also need to be reviewed to facilitate price competition in this market