Private capital flows to sub-Saharan Africa have started to outpace official development assistance. These external flows are composed of foreign direct investment from Brazil, Russia, India, China and South Africa (BRICS), portfolio flows, and remittances from diaspora members. In 2010, South-South investment from BRICS reached 25 percent of Africa’s total FDI flows, and the trend is increasing. Remittances are also growing: Over the decade from 2002-2012, they averaged about $21.8 billion. Members of the diaspora, based on the size of their remittances, seem eager to contribute money to their home countries. While the bulk of remittances finances education, health and consumption, this money could potentially be used to finance businesses that contribute to growth.
In his brief, Amadou Sy, senior fellow at the Brookings Africa Growth Initiative, entreats policymakers to harness different types of private external flows more efficiently to achieve goals for broader development.
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One way to make remittances work more efficiently for African countries is by reducing the costs of sending money home. Africa currently stands as the most costly region in the world for sending remittances. Sy prompts policymakers to work on scaling up the success of mobile money transfers programs such as M-Pesa in Kenya in order to lower some of these barriers.
Read Foresight Africa 2014, which details the top priorities for Africa in the coming year, for more discussion on how to better utilize external financial flows to fill the development financing gap in sub-Saharan Africa.