When Donald Trump returned to the White House in January 2025, one of his earliest moves was to slash billions of dollars in foreign aid, a decision that sparked a bruising budgetary confrontation with Congress and triggered legal disputes. By mid-year, a federal appeals court upheld the president’s authority to proceed with the reductions, overturning earlier injunctions. The ruling sent tremors across the global development community. Aid organisations and United Nations agencies warned that the cuts would have far-reaching humanitarian consequences, particularly for countries in the Global South that remain heavily reliant on external assistance for basic services and social safety nets.
The debate over the value of foreign aid is not new, but recent events have brought it into sharp relief. Across Africa and much of the Global South, questions persist about whether aid has delivered sustainable transformation or merely entrenched dependency. At the same time, another financial current has been rising quietly but consistently—remittances. Transfers from Africans living abroad to their families back home have grown into one of the most resilient and stabilising sources of external finance, offering lessons that extend far beyond the continent.
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The Silent Giant: Remittances Surpassing Aid and Investment
Over the past decade, remittance inflows to Africa have nearly doubled, climbing from roughly US $53 billion in 2010 to about US $95 billion in 2024. Their contribution to Africa’s GDP also rose from 3.6 per cent to 5.1 per cent, underscoring their deepening relevance. Unlike aid, which is vulnerable to the political winds of donor countries, remittances have proven remarkably steady, even during global crises such as the COVID-19 pandemic. Their scale now places them on par with, or in some years surpassing, official development assistance (ODA) and foreign direct investment (FDI).
In 2024, Africa attracted around US $97 billion in FDI, but over a third of that was concentrated in a single megaproject in Egypt. Stripping that out leaves about US $62 billion in diversified investment across the rest of the continent, significantly below remittance inflows. Egypt, Nigeria and Morocco alone accounted for the largest shares of Africa’s remittances that year, while smaller states such as Angola, Seychelles, and São Tomé and Príncipe received less than one per cent of total inflows. These disparities highlight not only the uneven geography of remittance dependence but also the untapped potential of harnessing these flows more strategically for long-term development.
The Human Face of Finance
Remittances distinguish themselves from aid and investment by their directness. Unlike ODA, which must navigate bureaucratic pipelines and political conditions, or FDI, which is tied to corporate priorities, remittances flow straight to households. In Kenya, for instance, surveys before the pandemic showed that nearly 65 per cent of households relied on remittances as part of their income. In The Gambia, close to half of households depended on transfers from abroad. These funds meet immediate needs, covering food, healthcare, housing and school fees, while stimulating local trade and small business activity.
The macroeconomic value is equally significant. In countries such as The Gambia, Lesotho, Comoros, South Sudan, Liberia and Somalia, remittances make up more than 10 per cent of GDP. In The Gambia, the ratio reached nearly 27 per cent in 2023, one of the highest in the world. This injection of foreign exchange provides stability for national reserves, reduces external vulnerabilities, and cushions economies against global financial shocks.
Global Lessons
Africa is not alone in navigating the question of how best to use remittances. Other Global South economies offer valuable lessons. Bangladesh, long one of the world’s top recipients, has transformed remittance flows into engines of investment by formalising transfer channels, promoting financial inclusion, and issuing diaspora bonds. In the Caribbean, nations such as Jamaica and the Dominican Republic have also pioneered systems that encourage migrant communities to invest in housing, tourism, and small enterprises.
These examples underscore a key point: remittances are not destined to remain a safety net for household consumption. With the right policies, lower transfer costs, wider digital inclusion, diaspora bonds, and structured investment schemes they can be leveraged into broader development strategies that reinforce infrastructure, entrepreneurship, and even climate resilience.
Digital Highways: Narrowing the Costly Gap
Yet a central challenge persists. Sending money to Africa remains costly. According to the United Nations, in 2023 the global average cost of sending US $200 stood at 6.2 per cent, but for sub-Saharan Africa it was closer to 8 per cent, well above the Sustainable Development Goal target of reducing transfer costs to below 3 per cent by 2030. Mobile banking has helped narrow this gap, with digital remittance services often offering cheaper rates than traditional banks. But uneven access to digital infrastructure and financial literacy keeps many families reliant on informal and expensive channels.
Initiatives such as the Pan-African Payment and Settlement System (PAPSS), introduced under the African Continental Free Trade Area (AfCFTA), represent an important step towards lowering costs and creating more efficient cross-border payment corridors. If scaled successfully, such digital highways could transform remittances from isolated lifelines into integrated engines of financial inclusion.
Aid, Remittances and the Search for Balance
This raises an essential question: should Africa rely more heavily on remittances than on aid? The answer lies not in competition but in complementarity. Aid has financed schools, hospitals, and governance reforms that lay the groundwork for long-term stability. FDI has brought infrastructure, jobs, and technology transfer. But remittances provide what neither can: immediacy, stability, and direct impact at the household level.
The challenge for policymakers is therefore not to choose one over the other, but to design policies that integrate these flows. This means aligning aid and remittance strategies with the UN Sustainable Development Goals, encouraging productive use of diaspora capital, and reducing systemic leakages. Above all, it requires acknowledging that development is not built solely through donor generosity or corporate investment, but also through the sacrifices of ordinary migrants sending money home week after week.
Charting the Way Forward
For Africa to fully harness the power of remittances, several imperatives stand out. Transfer costs must fall, in line with global commitments. Regulatory frameworks should be strengthened to encourage formal transfers and protect consumers. Diaspora bonds and investment funds must be scaled up with transparency to win the trust of African migrants abroad. And perhaps most crucially, financial inclusion must be deepened so that remittances flow not only into consumption but also into productive savings, small businesses and community infrastructure.
If these steps are pursued, remittances will not simply remain a lifeline for struggling households. They will become part of a broader architecture of African self-reliance, complementing aid and investment while reinforcing the continent’s own agency in charting its development path.
