From Remittances to Investment: Harnessing Diaspora Finance for Africa’s Development

By Primus M. Tazanu, PhD

Executive Summary

Remittances are among Africa’s most resilient external financial flows and a vital household lifeline. Yet the continent underuses this resource for long‑term development. This brief argues for a shift from a narrow focus on household remittances toward structured diaspora investment instruments, such as diaspora bonds and regulated funds, to complement public revenue, reduce reliance on costly external borrowing, and finance productive sectors without crowding out essential family transfers. Official estimates indicate that remittance inflows to Africa exceeded US$100 billion in 2022, while FDI reached about US$97 billion in 2024, roughly comparable in scale. Remittances are also consistently more stable than other external flows. To capitalize on this resilience, African governments should: (i) create transparent diaspora investment vehicles; (ii) cut transaction costs and expand digital rails; (iii) embed diaspora finance in national development plans; and (iv) strengthen governance, disclosure, and accountability.

Current State of Remittances in Africa

Let me start by citing statistics to demonstrate the seriousness of the propositions in this piece. Marvellous Ngundu and Julia Baum of the Institute of Security Studies in South Africa, reveal that between 2010 and 2024, remittances inflows to Africa rose from around US$53 billion to US$95 billion, raising their contribution to the continent’s GDP from 3.6% to 5.1%. Citing World bank data, the UN reveals that African received over $100 billion in remittances in 2022. By comparison, Africa received US$97 billion foreign direct investment (FDI), reveals a 2024 UNCTAD report.

With regard to remittances, the statistics rely on money transmitted through official channels, meaning the real amount of remittances inflow into Africa could be much higher. Additional evidence, including COMESA’s 2023 report, confirms that remittances to Africa are much higher, considering that, some remitters chose informal channels to transfer money. Thus, remittances are either at par with, or have surpassed, official development assistance and foreign direct investment in Africa.

However, there is much to that. The remittances inflows are an expression of migrants’ duty and obligations to their families. The United Nations notes that remittances are uniquely resilient, even during global downturns, because they are driven by social obligations rather than market fluctuations. Migrants support families and households to pay for basic living expenses such as food, housing, healthcare, education, clothing, etc. In other words, most of these remittances are for immediate consumption.

Africa would benefit more from migrants’ remittances if governments strengthened structured pathways that encourage diaspora investment without undermining household welfare. This, in a period when the global financial system faces liquidity problems and rising cost of debt servicing, says Phyllis Papadavid of Overseas Development Institute. Papadavid argues that Africa should do more to attract diaspora investors, citing the examples of the diaspora bond in Ethiopia and Nigeria.

Why Shift to Investment?

International liquidity challenges, which is the inability to quickly convert goods into cash to cover short-term expenditures, and the rising cost of debt servicing, are compelling reasons for African governments to diversify their sources of financing the economy; the African diaspora is potentially a formidable force that can contribute to finance African development in all sectors. This is very significant because unlike FDI and overseas development assistance, remittances are more resilient, says the United Nations; remittances ventures may be more diverse, without necessarily expecting fast or short-term profits.

One must nonetheless make an important clarification here. As stated earlier, the diaspora remits primarily to their families, thus, raising doubts on how remitting for development may not risk sidelining households that depend on diaspora money. This brief proposes a parallel mechanism that requires African governments to entice the diaspora to finance development back home, without necessarily siphoning household remittances. Such an approach necessitates well‑regulated, transparent investment funds tailored to diaspora investors.

Lessons from Other Countries

The examples of Bangladesh, Mexico, and the Philippines are inspiring and Africa can draw lessons from them on how to channel the diaspora remittances for development. Bangladesh demonstrates that reducing transaction costs and digitizing financial systems can increase official remittance flows. African countries could likewise design incentives that lower the cost of transferring funds to the continent. For example, making investment-related remittances tax-free could motivate the diaspora to invest back in Africa. Secondly, African governments could introduce national development planning that incorporates diaspora financing, drawing inspirations from Mexico where the government runs programmes that integrate remittances in national development plan. Such programmes would make migrants feel ownership of local development projects. The key lesson here is that embedding diaspora financing into formal development planning frameworks would strengthen ownership and accountability. Lastly, the Philippines promotes remittances-related savings and micro enterprise development. African countries could adopt similar savings instruments, paired with regulated micro‑investment platforms targeting diaspora communities.

The Case against Dependency on Foreign Financial Institutions

Setting priority on remittances would diversity Africa’s sources of financing the economy and provides an opportunity for them to rely less, and if possible, reconsider borrowing money from international financial institutions such as the International Monetary Fund (IMF) and the World Bank (WB). For six decades, the IMF/WB have supported macroeconomic stability and growth in Africa through providing vital financial assistance, policy advice, and technical assistance. However, this support has had its downside for the African countries.

While international financial institutions provide crucial financing, their loan conditionalities can sometimes misalign with domestic development priorities. For instances, some critics observe that these conditions often do not align with the sociopolitical and economic realities of the indebted African countries. Additionally, African countries must rethink about the amount of money they devote to servicing the international debts. The continent spent 16.7% of its GDP in 2023 to repay international creditors and this included debt owed the IMF/WB. The statistic reveals the extent of African dependence on foreign financial institutions as well as points to structural dependency that may in turn limit African fiscal autonomy. Africa may thus need to re-examine the practice of borrowing money from international financial institutions in the face of the potentials of remittances.

Opportunities for Africa

Africa should find a way to maintain its financial autonomy. The African diaspora investment presents an opportunity in this direction. Diaspora investment could be much friendlier and understanding, not necessarily following the inflexible market principles championed by institutions such as the IMF/WB. The investments would unlikely place conditions such as structural adjustments or that African countries reduce the provision of social services to the people. Additionally, the African diaspora has a sense of obligation to their countries and the more money they remit, the less Africa would turn to the IMF/WB for loans. In fact, rather than relying too much on these institutions, African governments could create an investment fund, into which the diaspora invests money and get paid interest. This would probably reduce capital flight or outflow of remittances from Africa in the form of interests to the western financial institutions.

For decades, debt servicing payments have resulted in significant capital outflows, reducing fiscal space for development investments. Reversing this trend would significantly increase the amount of money that circulates within the African economy. However, diaspora investors will demand transparency and accountability — governments must build credible institutions and create conducive environment to channel funds, says the African Development Bank. They must demonstrate that they have set up institutions that primarily focus on diaspora investments. It is left to the individual African governments to figure out the details of how to govern, monitor, and audit the funds. Governing would entail assigning responsibilities to individuals to ensure that the remitted funds are used as intended. Monitoring is a continuous process of tracking the investment. Furthermore, it requires that the investors are updated about the performance of their investments. Lastly, through auditing the governments evaluate the investments. This could be done both internally and externally.

Policy Recommendations

To harness the diaspora finance for development, the African countries would need the following instruments, infrastructure, and legal condition:

Finally, for policymakers: Harnessing diaspora finance is not only about reducing debt dependence; it is about building resilient, self-reliant African economies.

Conclusion

African countries should devise strategies to entice the African diaspora to invest in the continent. Among other considerations, this suggestion is against a backdrop of loan conditions and interests that these countries pay to international institutions such as the IMF/WB. The proposition challenges African governments to establish diaspora investment funds, tax breaks for migrants, as well as strengthen transnational digital banking infrastructure. Migrants’ remittances to the family, and therefore an obligation to their countries of origin, demonstrate that they want a thriving African economy. Ultimately, reducing dependence on remittances for household survival requires building stronger domestic economies that allow families to thrive without external support. To sum up, diaspora finance is not just an alternative; it is a strategic lever for Africa’s economic independence.