Fresh M-PESA deal to enable remittances flow to Ethiopia from 40 countries

  • Cash transfer service M-PESA is eyeing a chunk of the remittances to Ethiopia which are estimated at $5 billion annually.
  • Last year, the World Bank stated that the remittances flow to countries in sub-Saharan Africa reached $54 billion.
  • Through a new M-PESA-Onafriq agreement, friends and relatives from 40 countries will now be able to send money directly to Safaricom Ethiopia M-PESA subscribers.

Safaricom Ethiopia is betting on remittances to grow cash transfer service M-PESA uptake in Ethiopia following an agreement with one of Africa’s largest digital payments network Onafriq. Through the deal, friends and relatives from 40 countries where Onafriq has a presence will now be able to send money directly to M-PESA subscribers in Africa’s second most populous country.

Through the agreement, individuals within Ethiopia will receive remittances from different parts of the world through M-PESA, based on the authorization received from the National Bank of Ethiopia to start the remittance service in July 2023, an update from the telco said.

“M-PESA Safaricom has signed an International Money Transfer Agreement with Onafriq, Africa’s largest digital payments network, operating in 40 African countries, to help streamline remittance flows to Ethiopia,” the company explained.

Safaricom Ethiopia General Manager Paul Kavavu said the deal will make payments easier, and the incorporation of International Money Transfer services into M-PESA serves that purpose perfectly.

Remittances to Ethiopia

“Ethiopia generates more than five billion USD in remittances annually and this partnership will provide the Ethiopian Diaspora with an easy and fast formal channel to send money to their loved ones in Ethiopia,” added Kavavu.

Last year, the World Bank stated that the remittances flow to countries in sub-Saharan Africa reached $54 billion in 2023 – an increase from the previous year’s gain. This increase was driven by strong remittance growth in countries like Mozambique, Rwanda and Ethiopia.

While this increase is a move in the right direction, there is work to be done. The receipt of remittances plays a crucial role in reducing poverty as well as the GDP of a country. Ethiopia’s Director General of Ethiopian Diaspora, Mohammed Endris, previously noted this, stating that in some countries remittances take up to 40-50 percent of the GDP, while the remittance sent by the diaspora to Ethiopia is 5 percent.

A partnership such as the one between M-PESA Safaricom and Onafriq will only serve to contribute to this figure. The incorporation of International Money Transfer capability into its offering allows M-PESA to tap into and leverage Onafriq’s extensive network, connecting 500 million mobile money wallets and 200 million bank accounts.

This vast reach enables domestic and cross-border disbursements and collections, card issuing and processing, agency banking, and treasury services. Nika Naghavi, Group Head of Growth at Onafriq, states that the partnership will directly stimulate the realization of Ethiopia’s digital transformation strategy.

Financial inclusion

The strategy termed ‘Digital Ethiopia 2025’, places emphasis on enabling systems through digital transformation, of which digital payments form a crucial part. The country’s solution to this includes ensuring financial inclusion, innovation in the banking system, and the adoption of innovative solutions.

“We have always believed that payments should be a simple process, as simple as a phone call – connecting individuals through increased access. The agreement with M-PESA Safaricom extends our reach in Africa even further and strengthens our position as the largest payment network on the continent. We are confident that this partnership will positively impact economic growth and the achievement of greater sustainable development goals,” says Naghavi.

The service complements Ethiopia’s efforts to generate foreign currency inflow through formal channels, offering a safe, inclusive, and reliable service to customers through M-PESA.

Remittances to Sub-Saharan Africa 

Remittances to low- and middle-income countries (LMICs) grew an estimated 3.8 percent in 2023, a moderation from the high gains of the previous two years. Of concern is the risk of a decline in real income for migrants in 2024 in the face of global inflation and low growth prospects, according to the World Bank’s latest Migration and Development Brief released today.

In 2023, remittance flows to LMICs are estimated to have reached $669 billion as resilient labor markets in advanced economies and Gulf Cooperation Council (GCC) countries continue supporting migrants’ ability to send money home.

By region, remittance inflows grew for Latin America and the Caribbean (8Per cent ), South Asia (7.2 percent), East Asia and the Pacific (3 per cent ), and Sub-Saharan Africa (1.9 percent).

Flows to the Middle East and North Africa fell for the second year, declining by 5.3 percent mainly due to a sharp drop in flows to Egypt. Remittances to Europe and Central Asia also fell by 1.4 percent after gaining more than 18 percent in 2022.

The United States continued to be the largest source of remittances. The top five remittance recipient countries in 2023 are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).

Economies where remittance inflows represent substantial shares of gross domestic product (GDP) – highlighting the importance of remittances for funding current account and fiscal shortfalls – are Tajikistan (48 percent), Tonga (41 per cent ), Samoa (32 per cent ), Lebanon (28 per cent ), and Nicaragua (27 per cent ).

Based on the trajectory of weaker global economic activity, growth of remittances to LMICs is expected to soften further to 3.1 per cent  in 2024. Driving the moderated forecast are a slowing economic growth and the prospect of weaker job markets in several high-income countries.

Additional downside risks include volatile oil prices and currency exchange rates, and a deeper-than-expected economic downturn in high-income countries.

THE AUTHOR: Jack Oduor

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