Remittances and poverty reduction in Zimbabwe

The government of Zimbabwe’s policy on international migrants has recently focused on the potential developmental effects of the remittances. It has established the ‘Home Link’ scheme which aims to channel these. However, low trust from the migrants and low official exchange rates are major obstacles to this.

Research from the Institute of Development Studies at the University of Zimbabwe and the Institute of Development Policy and Management at the University of Manchester, UK finds that remittances are critical toalleviating household poverty in urban Zimbabwe. A survey of 300 households in Harare and Bulawayo shows that 50 percent of the householdsreceive remittances. A substantial majority of these depend on them foressential household goods, including food and paying utility bills.

A complex web ofmoney and goods transactions within the informal sector supports the Zimbabweaneconomy. The research finds that the country’s recent economic collapse isbeing offset by this informal, international, parallel economy and by Zimbabweanswho have themselves left the country as a result of the economic collapse.

The research also findsthat:

• Households prefer to send and receiveremittances through the informal economy. Close to 80 percent oftransactions happen through this: relatives are the main money transfer agentsrather than the institutional (but informal) networks and companies.
• In-kind gifts and goods transfers are veryimportant: although earlier considered as a secondary form of transfer (a smalladdition to the money transfer), in fact in Harare and Bulawayo,the value of in-kind gifts is almost twice as much as the real value ofmoney transferred.
• In-kind gifts could be poorer households’response to local inflation induced as a result of richer households spendingremittances money on goods from the local markets: this inadvertently raisesprices of goods and poorer households cannot afford them anymore.
• Remittances, in Zimbabwe, are not distributed favourably to the poorestpeople: 40 percent of the poorest households do not receive anything.
• Remittances can also aggravate pre-existinginter-household inequalities as 38 percent of the richest households benefitfrom remittances.

Although it is practicallydifficult for some of the households to survive without the informal remittances,their long-term sustainability is doubtful. Stricter regulations for suchnetworks in the main migrant receiving areas of South Africa and the UK are making it difficult for them to operate.

Policy implicationsinclude:

• The relationship between migration anddevelopment is central to poverty reduction policy and could usefullyinform immigration policies, and banking regulation in developed countries.
• Policies on the safety and transfer offunds to enhance the developmental impact of workers’ remittances shouldbe extended.
• Policy to enhance the poverty reductionpotential of migrant remittances in Zimbabwe depends on enhancing the officialexchange rate.