REMITTANCES TO SENEGAL ARE AN ECONOMIC FORCE

UNCLAS SECTION 01 OF 02 DAKAR 001868

SIPDIS

SIPDIS

DEPT FOR AF/W, AF/EPS, AND EB/IFD/ODF
AND PASS AID/AFR/SWA AND AID/PPC/DC
TREASURY FOR OIASA/IDB:EBARBER

E.O. 12958: N/A
TAGS: EFIN ECON EAID SG
SUBJECT: REMITTANCES TO SENEGAL ARE AN ECONOMIC FORCE


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1. (U) SUMMARY: Formally recorded remittances to Senegal topped USD
800 million in 2006 and are undoubtedly higher this year. Informal
money transfers are not quantified, but are also significant,
perhaps equaling the formal flow. These funds are an important
source of foreign currency and alleviate somewhat Senegal's balance
of payments deficit. Most of these funds are sent to family members
to help with basic living expenses or to contribute to investments
in residential housing. The international network of traders and
workers affiliated with Senegal's Muslim Mouride Brotherhood
transfers tens of millions of dollars or more to their leaders in
Touba as religious tithes. GOS policy to date has encouraged
Senegalese to use formal banking and money transfer systems (and pay
the associated high fees). To date, however, there has not been
much movement to take advantage of these financial in-flows to
create broader investment instruments. END SUMMARY.

THE SIGNIFICANCE OF REMITTANCES
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2. (U) Remittances back to Senegal from citizens living overseas
(mostly in Europe, the U.S., the Middle East, and Gabon) are a major
source of foreign currency, providing a counterweight on Senegal's
balance of payments deficit. According to a recent report published
by the GOS's Department of Forecasting and Economic Studies (DFES),
remittances from expatriates reached USD 820 million in 2006
compared to USD 681.6 million in 2005, an increase of 17 percent.
This upward trend will undoubtedly continue in 2007 and beyond.
These transfers have contributed to lessen the deterioration of
Senegal's current account deficit (9.5 percent of GDP in 2006 and
8.5 percent of GDP in 2007).


3. (U) The DFES report also noted that the majority of remittances
are not formally recorded and that the official estimates likely
capture only 50 percent of the actual volume. Actual remittances
(formal and informal) are therefore likely well above USD 1 billion
this year, the equivalent of half of Senegal's total planned revenue
collection and equaling more than ten percent of GDP. In
comparison, Senegal's FY 2007 investment/development budget to
address poverty reduction and basic needs calls for spending
approximately USD 764 million of GOS funds and an additional USD 512
million from donors.

WHERE DOES THE MONEY GO?
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4. (U) According to the report, remittances have become the highest
legal source of external income for Senegal, and major source of
income for a large percentage of Senegalese families and, though
difficult to quantify, a major contributor to poverty reduction. In
general, it is estimated that more than 40 percent of Senegalese
households benefit from remittances. These contributions, often
sent in USD 100-150 increments on a monthly basis through services
such as Western Union, are used to directly support households with
daily consumer items, for health and education costs, accumulation
of assets including property and livestock, and for housing
construction. Senegalese living overseas also send cash, clothing,
and documents through an informal network of "runners" in an
apparent effort to avoid shipping, customs, and money transfer fees.
A relatively small percentage of family remittances go into formal
bank accounts or investment funds. Some also provide family members
in Senegal with bank cards that allow them to withdraw money from a
foreign-based account.


5. (U) The source of the remittances is mostly from traders and
small business people working in Europe and the U.S., many without
legal status. However, a significant amount also comes from
Senegalese with legal residence or dual citizenship, who continue to
support family members in Senegal. Surprisingly, some Senegalese
children who apply for immigrant visas do not appear to benefit
educationally from these remittances. Many appear for their
interviews unable to speak French, not having benefited from formal
education as one might have otherwise expected. Perhaps the largest
contributors to this phenomenon are members of Senegal's Muslim
Mouride Brotherhood, who are well known as small traders operating
abroad. The brotherhood has amassed considerable economic power
through tithe-like remittances. In addition to supporting their
families, Mourides are very faithful in sending money back to Touba
(the "sacred" town of Mouridism) in the name of the Kalif. It is
not possible to know the amount of money flowing back to the Mouride
leadership, but it is likely more than USD 100 million per year.


6. (U) In Dakar and Touba the impact of remittances can be seen in
new investments, particularly in residential construction in Dakar
and improvements to the grand mosque and other Mouride institutions
in Touba, a city that has grown much faster than national GDP over
the last decade. Investments have pushed up the real estate values
in Dakar as real estate "back home" has become one of the most
attractive forms of investment for many overseas Senegalese. Other
cities with high rates of remittances, such as Tambacounda, Matam,

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and Kedougou, do not appear to be benefiting as much, at least in
terms of new construction or employment-generating activities. One
commentator noted that remittances have encouraged "laziness" among
recipient families who receive more from abroad than by working in
the local economy.

THE GOS ROLE
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7. (U) The GOS has highlighted the positive impact of remittances
in its Poverty Reduction Strategy (PRSP) and has proposed strategies
to further promote remittances by formalizing contact with Senegal's
diaspora. For example, the GOS has been active in encouraging more
flexible arrangements between banks and post offices and
organizations such as the Western Union and Money Gram. At the same
time, when the report was publicized, there was criticism of the
government for "permitting" Western Union and banks to charge
"outrageous" fees for money transfers. Some commentators called on
the Government to establish a "solidarity bank" linking overseas
Senegalese with family members at home to permit the establishment
of joint accounts and cheaper transfer mechanisms.


8. (U) One area that is not yet being addressed is the potential
role the microfinance institutions (MFIs) might play in banking
remittances. Only two of Senegal's one hundred-plus MFIs are
formally involved in the remittance market (UNACOIS and Djoloff
Mutuel d'Epargne et de Credit) and the legal framework for
microfinance institutions in the West African Monetary Union (WAEMU)
does not facilitate MFIs access to the remittance market.

COMMENT
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9. (U) While contributing to boosting family income and lessening
poverty, the GOS needs to do more to enhance remittances' positive
effects, by, for instance, encouraging investment instruments that
can turn remittances into capital for new business ventures.
Furthermore, the government needs to create economic platforms that
would encourage migrants to return to Senegal to set up Small and
Medium Enterprises thus applying their foreign educations and skills
at home.

SMITH