The Togolese diaspora plays a crucial role in the country’s economic development through the money transfers made annually. These funds represent a major source of financing, often surpassing official development assistance and foreign direct investment. But what is the real impact of these remittances on Togolese families and the national economy? How are these funds used, and what challenges are associated with them? This article offers an in-depth analysis of the weight of remittances from Togolese abroad on the national economy.

The importance of the Diaspora’s remittances in Togo’s economy

Remittances from the Togolese diaspora account for a significant proportion of the country’s Gross Domestic Product (GDP). In 2023, they accounted for over 7% of the GDP, according to a World Bank report. This percentage highlights the extensive economic role played by Togolese living abroad. In comparison to other external funding sources, these funds often surpass official development assistance and even rival foreign direct investment.

In 2017, for example, Togolese abroad transferred about 287 billion CFA Francs (approximately 507 million US dollars) back to their home country. These funds generated an average of more than 14 billion CFA francs in tax revenue for Togo, underscoring the economic importance of the diaspora.

In 2018, remittances continued on this trajectory, reaching over 500 million dollars, or an approximate 8,5% of the national GDP. This contribution placed Togo among the Sub-Saharan African countries with the highest ratio as far as remittance to GDP is concerned, ahead of countries like Nigeria and Ghana. Unlike foreign aid, these funds are directly injected into the households, giving them an immediate and tangible impact on the living conditions of the beneficiaries.

However, despite their large volume, these remittances remain largely underutilized as a lever for economic growth. In the absence of clear strategies for channeling these funds into productive investment, their impact remains limited to household consumption, thereby hampering their potential for economic transformation.

A vital support indeed for Togolese families

One of the main effects of remittances is the direct support they provide to Togolese families. For many households, these funds are the most important source of income and help them to meet their basic needs. Food, healthcare and education are the primary areas of spending covered by these remittances. Thus, the Diaspora plays a key role in reducing poverty and improving the living conditions of thousands of Togolese.

Remittances are particularly important for financing children’s education. Thanks to these funds, many young Togolese have access to a better education, which indirectly contributes to the development of the country’s human capital. In addition, remittances enable families to access better quality health care, reducing inequalities in access to medical services.

However, a large portion of these funds is used for everyday consumption, which does not necessarily foster sustainable economic growth. The lack of incentives or mechanisms encouraging investment of Diaspora funds in productive sectors limits their contribution to job creation and the development of robust economic infrastructure.

Untapped development potential 

Despite their importance for the economy and households, remittances from the diaspora are underutilized as a lever for sustainable development. In the absence of a clear and incentivizing policy to direct these financial flows into productive projects, much of these funds are used for immediate consumption rather than for long-term investments.

Mindful of this reality, the Togolese government is seeking to mobilise the diaspora for long-term, structural projects. A roadmap has been developed to encourage Togolese abroad to invest in productive initiatives, with the aim of channeling part of the remittances into investments that could boost the national economy.

The major challenge, therefore, is to transform these financial flows into real engines of growth. Encouraging entrepreneurship, offering tax exemptions for diaspora investments and facilitating access to credit are all ways to maximise the impact of remittances on national economies. Without a strategic redirection of these funds, their potential for economic development and job creation will remain largely untapped.

The challenges posed by transfer costs

Another major challenge is the high cost of transfers. In the fourth quarter of 2023, the global average cost of sending $200 was 6.4%, well beyond the 3% target set by the Sustainable Development Goals (SDGs). Reducing these fees would increase the resources available to recipients and encourage more substantial investment in development projects.

High transaction fees not only limit the purchasing power of recipient households, but also discourage expatriates from sending more substantial amounts. Many financial platforms, including banks and remittance services, charge excessive fees that weigh heavily on users.

Several solutions could be considered to address this issue, such as developing low-cost digital transfer systems and promoting the use of cryptocurrencies or mobile payment platforms. Reducing transfer fees would increase the resources available to households and encourage more effective use of these resources in productive sectors.

The inflow of remittances from the Togolese diaspora is a fundamental component of the national economy. Remittances play an essential role in the well-being of families and provide significant financial support to the country. However, their potential for economic transformation remains underutilised. By implementing policies to channel these funds into productive investments and reducing transfer costs, Togo could significantly enhance the impact of this financial windfall. Better mobilisation of these resources would not only improve the economic resilience of households but also accelerate the long-term development of the country.