Africans are effectively paying a ‘super tax’ on money transfer fees that are more than double the global average, according to a report by the Overseas Development Institute (ODI).

The ODI, a UK-based think tank, said cutting the costs of money transfers (remittances) to Africa would enable the continent’s diaspora “to make a bigger contribution to the region’s development and strengthen self-reliance”.

The ODI has called for an investigation of global money transfer operators (MTOs) by anti-trust bodies in the EU and the US to identify areas “in which market concentration and commercial practices are artificially inflating charges”.

Regulatory reform in Africa is also needed to revoke ‘exclusivity agreements’ between MTOs, banks and agents and promote the use of micro-finance institutions and post offices as remittance pay-out agencies. Governments and MTOs should work to promote mobile banking as a strategy to support the development of more inclusive financial systems, the ODI added.

In its report, the ODI said: “Remittances to Africa are rising. In 2013, remittances to the region were valued at $32 billion or around 2% of gross domestic product (GDP). Projections to 2016 suggest that remittances could rise to more than $41bn. With aid set to stagnate, remittances are set to emerge as an increasingly important source of external finance.”

The report added: “Charges on remittances to Africa are well above global average levels. Migrants sending $200 home can expect to pay 12% in charges, which is almost double the global average. While the governments of the G8 and G20 groups of nations have pledged to reduce charges to 5%, there is no evidence of any decline in the fees incurred by Africa’s diaspora.”

Reducing charges to world average levels and the 5% G8 target would increase transfers by $1.8bn annually, the ODI said.

According to the report, ‘remittance corridors’ within Africa itself have “some of the highest charge structures in the world”. “Migrant workers from Mozambique sending money home from South Africa or Ghanaians remitting money from Nigeria, can face charges well in excess of 20%.”

The “highly opaque nature” of remittance markets and the complex range of products make it difficult to find out why charges are so high, the ODI said. “Much of the relevant commercial information needed to establish detailed structures is unavailable.”

However, the report said factors that “combine to drive up charges” include limited competition, evidence of ‘exclusivity agreements’ between MTOs, agents and banks (“which restrict competition”), financial exclusion and poor regulation.

The report added: “Few Africans have access to formal accounts – which limits their choice of pay-out providers and most governments require payments to take place through banks, most of which combine high costs with limited reach and low efficiency.”

According to the ODI the UK, as one of the largest sources of remittance transfers to Africa, contributes to the loss of finance through high charges. Some $5bn was remitted to Africa from the UK in 2012. “Reducing average UK remittance costs to the global average would increase transfers by $85m, rising to $22.5m if charges were lowered to 5%,” the report said. “The bulk of these losses can be traced to large MTOs in the UK. On a conservative estimate, Western Union and MoneyGram secure $49m in payments through charges above world market averages.”

The ODI said the potential for development gains through lower remittance charges can be illustrated by studying current aid flows. For comparative purposes, the ODI used a “mid-range” figure between its ‘upper-bound’ and ‘lower-bound estimates’ of $1.8bn. “This is equivalent to half of the aid provided to Africa by the UK, the region’s third largest bilateral donor, or some 40% of remittances to Africa through the World Bank’s International Development Association – the largest source of multilateral aid for Africa.”

World Bank figures indicate that between 2007 and 2012 remittances to Africa grew by 34.5% and reached a total amount of $60.4bn in 2012. The same year, for the first time, remittances became the largest external financial source to Africa, ahead of foreign direct investment (FDI) and official development assistance (ODA), with 35% of global remittances to Africa originating in the EU.

In 2011 the World Bank, with support from the African Institute for Remittances Project, launched the ‘Send Money Africa’ remittance-price database – to monitor the cost of sending money to Africa. According to the bank, 30 million African migrants sent close to $60bn in remittances to 120 million recipients in 2012 alone. The bank said South Africa, Tanzania, and Ghana are the most expensive sending countries in Africa, with prices averaging 20.7%, 19.7% and 19% respectively.

The OECD’s ‘African Economic Outlook 2012’ report said countries such as Nigeria, Tunisia, Morocco, Senegal, Kenya, Swaziland and Lesotho rely on remittances as the largest external inflow. Remittances, ODA and FDI contributed to the “vast financial resources” required for improvements to schools, hospitals, public services and roads.