African Institute for Remittances (AIR) Project Third Technical Committee Meeting Wednesday February 29, 2012

African Institute for Remittances (AIR) Project Third Technical Committee Meeting Wednesday February 29, 2012 World Bank Regional Office, Addis Ababa, Ethiopia World Bank, Washington D.C African Development Bank, Tunis, Tunisia European Commission, Brussels, Belgium Minutes of Meeting Introduction: 1. This third Technical Committee (TC) meeting was convened at the World Bank Office in Addis Ababa on Wednesday, February 29 th 2012. It was chaired by Ms. Soheyla Mahmoudi, Senior Operations Officer and AIR Project Manager. The purpose of the meeting was to brief the Technical Committee members and the project partners on the activities completed in the last 8 months of the from July 2011; briefing the TC members on the technical assistance activities provided by the Bank and on the draft Organizational Structure and Cost-Benefit Analysis Reports; and to discuss the March side event in order to seek feedback as well as request input on activities yet to be undertaken. 2. Participants included: World Bank: Ms. Soheyla Mahmoudi, Senior Operations Officer and Task Team Leader for AIR Project; Mr. Kai Schmitz, Senior Financial Sector Specialist; Mr. Carlo Corazza, Financial Sector Specialist; Ms. Isra Salim Abubaker, Junior Professional Associate; Mr. Don Terry, Global Remittances Expert and Project Consultant; and Mr. Hailu Kinfe, Project Consultant (in Addis Ababa). African Union Commission (AUC): Mr. Philip Bob Jusu, Migration Officer; and Ms. Sewnet Mulushoa, Administrative Assistant (in Addis Ababa) European Commission (EC): Mr. Geza Strammer, Head of Migration Policy (from Brussels via audio); Ms. Barbara Rossi, in charge of AIR Project management in Brussels; Ms. Constance Motte, Migration and Development Policy Officer; and Mr. Ron Hendrix, Migration Mobility and Employment, EU Delegation to the AU (in Addis Ababa). International Organization for Migration (IOM): Mr. Josiah Ogina, Head of Mission and Representative to African Union(AU) / United Nations Economic Commission for Africa (ECA)/ Intergovernmental Authority on Development (IGAD)and Mr. Bruk Asmellash, Program Coordinator for Migration for Development in Africa (MIDA) (in Addis Ababa). African Development Bank (AfDB): Ms. Bernadette Dia Kamgnia, Division Manager, AfDB (from Tunis via audio). 3. Ms. Mahmoudi welcomed the committee by re-introducing the AIR project and its key objectives, namely: (i) Facilitate the process leading to the creation of the Institute; and (ii) Develop the capacity of the member states of the African Union (AU), remittance senders and recipients, and other stakeholders to implement concrete strategies and operational instruments to use remittances as development tools for poverty reduction. 1

Agenda: a) Briefing from the Bank's Team: on implementation of activities which are completed and activities which are in the pipeline. b) Discussion on the Project Development Objective 2 of the project - Provision of technical assistance to AU Member States and others (remittance senders and recipients, MTOs, private and banking sector) in the area of remittances. Briefing from the Bank's team regarding the planned activities which would contribute to achieve this PDO and Bank's team would seek inputs and comments from participants. c) Draft reports of Overall Organizational structure, cost-benefit analysis report, and Criteria for hosting the AU Organs. d) Update from AUC colleagues on the status of March side events. e) Any other business Discussion on Agenda - items a and b 4. Ms. Mahmoudi requested the Bank s technical team to make a briefing on the implementation of Objective 2 of the project, what has been done so far with regard to the technical assistance and what is in the pipeline. Technical Assistance to Postal operators and Risk Assessment: 5. Mr. Schmitz briefed the TC members on the workshops and risk assessments conducted in cooperation with the Universal Postal Union (UPU). The training program covers remittance operations such as cash management, customer service, payment and originating processes, compliance, financial inclusion, etc. It leverages the infrastructure already established by IFAD. Mr. Corazza added by explaining those risk assessment missions have been carried out in four AU member state countries, namely: Ethiopia, Gabon, Kenya and Mali. It focused on providing guidance for postal operators on managing risks inherent in offering remittance services. Assessments have been completed in Kenya, Gabon and Ethiopia. Remittance training has also been conducted for Ethiopian Postal Services Organization on the implementation of the recommendations from the assessment. With regard to Post Mali, a three day workshop has been conducted in sharing experiences of Post Gabon on cash management and participants from Mali, Burkina Faso and Gabon agreed on some standards. 6. The following questions and comments were raised on the above discussion: a. What types of risks were assessed? Do the risk assessment cover financial and compliance risks? What is the level of the risk? It was explained that any risks inherent in offering remittance services are assessed, including financial, compliance operational and reputational risks. The reports make recommendations of whether the postal operators should offer remittance services, depending of the level of assessed risk. b. From the Francophone countries how were Mali and Senegal selected for assessment? Is there a plan to expand to other countries like Cameroon? The risk assessments are driven by the needs of the UPU, and the bank s technical team is in constant communication with them. Technical assistance is provided as a direct outcome of the risk assessment where weaknesses and opportunities are identified. Congo and Gabon have requested assistance, but these countries may require an overhaul of the entire postal 2

system, and thus may not be feasible within the context of the AIR project. The suggestion of Cameroon was noted. c. What was the outcome of the trainings? Two workshops were held in Senegal for postal operators, in two groups. The first focused on remittance operations in general (cash management, handling of IFS system, compliance, marketing etc.). The second focused on financial inclusion (development of new products and services to recipients of remittances). The workshop in Mali was for cash management and treasury operations, with the participation of Gabon Post (key transmitter of remittances to Mali). General Principles for International Remittance Services (GPs): 7. Mr. Corazza continued by briefing the meeting that the Bank s technical team have been conducted assessment missions on the implementation of the General Principles for International Remittance Services (GPs) to help countries improve their national market for remittances. The assessments are conducted in close collaboration with Central Banks and have been completed in Tanzania, Malawi, Liberia and Sierra Leone. Assessment reports for Tanzania and Liberia have been finalised and officially delivered to the Central Banks, while reports for Malawi and Sierra Leone are being finalised and expected to be delivered by the end of March 2012. The team will now follow up with the recommendations, and are ready to respond to any requests for technical assistance. Please refer to Attachment (1) for the General Principles for International Remittance Services. 8. The following questions and comments were raised on the above discussions: a. What were the main finds identified in the GP missions? The legal and regulatory framework in terms of remittance services in the countries studied was weak and all require revision. In general, this can be achieved through implementation of the Payment Services Act. This is already in the pipeline for 3 out of 4 countries, and the payment systems infrastructure is being reviewed. Competition is another issue in all of these countries, as there are two major Money Transfer Operators (MTOs). Presence of other minor players is evident in Sierra Leone, but there is virtually no presence in other countries such as Liberia. This reduces possibility of reaching out in remote areas for remittance service, and different recommendations made in this regard. Transparency is low, and there is a lack of coordination among the different entities b. Which of the four countries studied allowing non-bank financial institutions to provide remittances services? What about e-banking? None of the banks analyzed maintain direct international links or partnerships between banks. However, some MTOs who are better organized that banks - have such agreements with banks and money remitters in the UK and US. Concerning e-banking, it was explained that it is at an embryonic stage in Tanzania. To the extent that it is used, it is used only to monitor accounts and transfer funds across accounts in the same bank. There are currently 4 operators in Tanzania, none of whom provide international remittances, but all of whom are considering providing this service. Similarly, in Sierra Leone, all systems are dedicated to domestic transfers. c. How do you obtain money in cash using mobile banking? 3

This depends on the model implemented in the country. If the model is based on bank accounts, a message containing an instruction to transfer money is sent to the bank, but the money stays in the bank. Thus the money can be retrieved using check, ATM, or on site. If the system is based on the infrastructure of the mobile network operator, a network of agents disburses money. Agents are usually small shops, grocery stores, gas stations, individuals etc. In Kenya, for example, a large network exists (MPESA). In this second model, the network of disbursing agents in crucial. African Remittances Database: 9. Mr. Corazza explained that the Send Money Africa database was launched and publicly available as of July 2011. The website, http://sendmoneyafrica.worldbank.org, analyses the transfer cost in more than 50 corridors including intra-africa corridors. The methodology for determining prices is based on a variety of indicators including delivery times, payment methods, foreign exchange rates etc. in order to calculate the average price. The selected corridors cover more than 60% of total remittances flow to Africa. The database is updated monthly and will be continued up to June 30, 2012. He also added that an awareness activity is planned on the existence of the database in USA and UK to promote its usage. 10. Questions and comments were raised on the above discussions on African Remittances Database: a. Until when will the database be available? Are there any plans for its expansion? The database will be available until June 2012 (however, with the recent request for a one year extension to the AIR project, it is expected that this date will also be moved forward). It is expected that this activity will be taken up as one of the activities of the Institute. Regarding possible expansion, there are plans to increase the number of corridors beyond 50; however, this must be done cautiously as the database will require maintenance and regular updating. In addition, each corridor added increases the cost; thus, some corridors have to be removed, or an approach based on the magnitude of the flows needs to be adopted. b. How the selection of corridors was made? In what criteria? The corridors were selected on the basis of the importance and volume of remittances, as well as the availability of data. Taken as a whole, it is designed to give an accurate picture of the remittances flowing to Africa. c. Does it include South South and intra Africa corridors? The Gabon-Mali corridor, for example, is much more active and substantial in volume than the France-Mali corridor. A similar example was provided of Mauritanians whose migratory networks are extensive across Africa. South-south corridors are included, and examples are South Africa-Tanzania and Kenya- Nigeria. Among others, some of the main migration patterns in Africa are due to war, famine and other emergencies. Many of these people do not have a sufficiently high level of income that enables them to send back remittances. Countries where commerce, industrialization and tourism are relatively high are the ones that have the potential to attract migrants as workers, and to the extent that data are available, these have been included in the database. The database looks at formal flows MTOs and banks. Therefore, it is impossible to track costs in the informal and illegal markets, which represent a large volume of the intra-africa flows. For this reason, the proportion of remittances to GDP is used to detect the relevant flows wherein the volume of flows becomes important. 4

On the insistence of the TC members that more intra-africa corridors be included in the database, the team agreed that the scope of the database could be widened. The inclusion of other corridors such as Gabon-Mali will be taken into consideration and evaluated subject to availability of funds. Mr. Terry intervened and explained that it is extremely difficult to estimate flows. The total amount of flows intra Africa is about 20% of total flows. However, it may well account for over 50% of total transactions. But these data are extremely difficult to obtain, and one of the objectives of this Project and Institute should be to substantially improve the data, particularly for sub-saharan Africa. d. Can the database be linked to the GP and risk assessments through the identification of high-cost corridors? An analysis is currently being prepared on the findings of the database in terms of trends at a regional level. This will certainly help assess the countries that are in greater need. This suggestion will be taken into account to assist in the identification of important corridors. 11. Please refer to Attachments (2), (3) and (4) for more information about AIR project activities (including Project flash report, Project implementation plan, and Project status report). Discussion on Agenda - item c Organizational Structure Report of the future AIR: 12. Mr. Kinfe presented the draft report on the Organizational Structure of the proposed AIR. He explained that the draft report considers recommendations from the Consultative and Experience Sharing Forum of July 2011, and is a product of extensive consultations with the Inter-departmental team of the AUC, which is organized as a task force to the AIR project. The report is still a draft and available for comments and additional inputs. Please refer to Attachment (5) AIR Organization Structure Report Final Draft and Attachment (6) Commission Report on AIR Preparatory Project and Proposed Organizational Structure. 13. Mr. Kinfe also explained that a progress report on the implementation of the Preparatory Project has been submitted to the AU Executive Council and the Council in its Decision (Dec.EX.CL/683 (XX)) acknowledged that the establishment of an AIR will facilitate remittances leverage for economic and social development and endorsed to be presented to the Joint AU-ECA Ministerial Conference of March 2012. Recommendations regarding the establishment of the Institute include: (i) a Specialized Office to the AUC, but governed by its own governing structure and statutes; (ii) AU member state Association of African Central Banks (AACB); or (iii) in the African Development Bank (AfDB). 14. Mr. Strammer welcomed the report but EC do not want to interfere as it is AUC s decision about choosing where to put the institute or overall Organizational Structure of the institute. 15. Institutional Structure: With regard to housing of the future AIR, AfDB was asked to comment on the option of AfDB hosting the institute. The AfDB s representative, Ms. Kamgnia, replied that this option would first need to be discussed internally. She added that AfDB has funds assigned to such a development agenda, and as such, is not an issue. In reference to the points listed as a threat in the SWOT analysis New donors might not be encouraged to participate on funding (Table, pg 15), she commented that is not the case and that rather it is an opportunity for AfDB in fund mobilization. It was 5

agreed that the result of AfDB internal discussions would be shared with AUC ahead of the March Ministerial meeting. 16. It was agreed that it would be advisable to delete the SWOT analysis in the report so as to avoid any misrepresentation. 17. The question was raised by Ms. Mahmoudi to the AUC regarding expressions of interest received from countries in hosting the Institute. The AUC said they have received such expressions from Burundi, Rwanda and Gabon through dialogue and discussions, however, only Mauritius has sent a letter to this effect through their Embassy. It was decided and agreed that any and all requests and expressions of interest should be addressed directly to the Director in the Department for Social Affairs (DSA) in the AUC. Please refer to Attachment (7) for the AUC Criteria for Hosting the AU Organs. 18. Proposed activities: Concern was expressed by the EC regarding the number of Activities proposed for the Institute ( Activities of AIR, page 7). The menu of potential activities offered by the future Institute should be closely reflected upon in order to allow offering the services to all AU member states on a demand-driven basis (see below). Mr. Terry advised that different countries are at different stages, with some being more advanced than others in terms of their payment system infrastructure. The menu of options allows customization of what should and can be done in each country. 19. The IOM requested clarification of Activity iv. Ensure that the World Bank-Committee on Payment and Settlement System (CPSS) General Principles for International Remittance Services (GPs) are implemented in Africa (AU member states). In addition, they stated that they would like the section of Catalyzing Private Sector Involvement (page 9) be more comprehensively developed. It was agreed that this section would be expanded further. 20. Mr. Corazza explained that the GPs are broad and general enough to be implemented in any country. They have been widely endorsed by several entities. Through the application of the GP s, African nations can improve transparency, risk management and compliance. It was agreed that a copy of the GP principles would be circulated to all TC members. Please see Attachment (1). 21. Summary of Decisions: a. (i) result of AfDB internal discussions would be shared with AUC ahead of the March Ministerial meeting; b. (ii) section on Catalyzing Private Sector Involvement would be expanded; c. (iii) SWOT analysis would be deleted; d. (iv) a copy of the GP principles would be circulated to all TC members; and e. (v) all requests and expressions of interest in hosting the Institute should be addressed directly to the AUC. Cost-Benefit Analysis (CBA) Report: 22. Mr. Kinfe continued to present the very first draft Cost-Benefit Analysis report. Please see Attachment (8) for the report. He explained that considerations have been given to the Proposed Organizational Structure, the proposed roles and activities of the future AIR, and that assumptions have been made to set institutional goals. Accordingly, the following goals have been set to be achieved by the initial operational years: a. Data collection, accounting and reporting ability of AU member states would be improved; b. Legal and Regulatory framework on remittances would be reformed and improved; 6

c. To reduce remittance transfer costs to 5% level from the current 10+% on remittances to Africa and up to 20% on remittances within Africa; d. Increased remittances volume as much as 50% of the current status; e. Increased number of remittances transaction by 20% from the current level. 23. Forecasts on costs and volumes: In response to questions concerning the forecast of the 20% reduction in transfer costs and 50% increase in remittance volume, Mr. Terry explained that through improved data collection and reporting activity, the amount of officially reported transaction flows to Africa will be increased substantially so that the undercount (as it currently stands) is not as severe. Thus the assumption that the reported volume would increase to as much as $40bn (up from current estimates of $20bn in flows to Sub Saharan Africa) is reasonable, and thus the 50% increase in remittances. 24. Similarly, as a result of increased volume, there will also be increased competition in the market leading to reduced costs and other associated improvements to the legal framework, distribution channels and introduction of new technology. A 20% reduction to costs is a reasonable estimate based on what has been evidenced elsewhere (e.g.: LAC). 25. Mr. Corazza commented that G8 and G20 countries have committed to achieving the 5 by 5 objective in reducing transfer costs. While this is relatively easier in G8 and G20 countries as they have an average cost of 7-9%, Africa faces a cost of ~15%, depending on the corridor. A substantial reduction of this cost is achievable, but anything lower than 5% would be unrealistic. For reference, the US-Mexico corridor, one of the most competitive, has a cost of 5-6%. He suggested that, perhaps, as an alternative to setting target volumes and transactions as a goal, the goal could be improving statistics. For example, having 5-10 Central Banks adopt the IMF Balance of Payment Manual for accounting of remittances is a concrete objective that can be realized, and as a result of this, formal remittances will increase. 26. Geographical limitation to scope: The question was raised by Mr. Strammer as to why, in the starting phase of the project, there appears to be a geographical focus, with benefits of the Institute being extended to 10-12 countries. Rather than so doing, he commented that it would be preferable to limit the mandate, but offer the services to all countries (on a demand driven basis). He also expressed concern regarding the number of activities that are proposed. 27. It was explained by both Mr. Kinfe and Mr. Terry that in the starting phase of the project, it would be difficult to impact all countries. The idea is not to limit the scope, but rather to roll out pilot projects that can then be scaled up. Some of these projects would be pan-african in scope. 28. Estimated Costs and Budget: The estimated budget for the Institute is presented on pg 18-19 of the CBA report. Mr. Terry advised the TC members that the staff and traveling costs for the first year can be reduced substantially. Although the normal protocol is to give a 5 year plan, in this case it is difficult to predict, as it will be determined by how well the projects perform. The World Bank recommendation is to limit the estimate to 3 years, after which it can be revised. The following was proposed: Year 1: $800 000; Year 2: $1mn; Year 3: $1.2mn. This institute must be project driven, such that there is a proportion between the number of staff and projects. The following caveat must also be applied: the administrative budget of the institute should not exceed 10% of the total value of projects. Hence, if the overall budget over the 3 years is $3mn, then the administrative cost should be $300 000. Thus, 90% of the resources should be dedicated to the implementation of projects, and these funds will have to be raised through various fund mobilization strategies, including dialogue and discussions with AU Member States, private sector, development partners and other potential donors or investors. 29. It was also discussed and agreed that the WB and EC contributions for the AIR preparatory project (including those under the AU Support Program (presently, the EC has contributed 55mn to the AU)) should be made explicit in the document. In addition, costs relating to the implementation of activities (such as infrastructure, IT equipment, set-up costs) should also be included, for a 3 year period. 7

30. Projects vs. Activities: There was strong objection by the EC to the use of projects, and requested that Activities be used as the term instead. The team agreed that this change will be reflected in the CBA and other reports. It was explained, however, that these projects/activities are needed to achieve the objectives of the Institute, and the provision of such technical assistance should be the main focus of the Institute. 31. Summary of Decisions: It was decided that the following changes would be made to the report: (i) It will be stated that the administrative cost should be no more than 10% of activities; (ii) The presented budgets will be modified as per the discussion (to include WB and EC contributions, costs related to implementation of activities for the first three years etc.), and the revised budget will be circulated ahead of the Steering Committee meeting; and (iii) Mention of Projects in the report will be replaced with Activities. Discussion on Agenda - items d and e AUC March Side Event: 32. Mr. Jusu briefed the meeting that invitations have been sent to Ministers, Experts and Speakers. The Agenda for the side event is currently being revised, as the event has been expanded to a 2-day event from March 24-25, 2012 rather than the 1-day event that was originally envisaged. AUC will provide the agenda once it is finished. 33. AfDB requested more information on this event, and informed the meeting that they will certainly be present. They will advise regarding who the AfDB representative will be after internal discussions. The AUC agreed to provide all the pertinent information. 34. The IOM requested whether the cost of participation of colleagues from Geneva would be covered from Project resources. It was agreed that this would be discussed bilaterally, as representation from IOM would certainly be important at the meeting. AOB: 35. Ms. Mahmoudi advised the TC members that the WB requested a one year extension to the project closing date of April 30, 2012. The EC have received all the necessary documentation from the Bank and is currently in the process of formalizing the extension request. Once legalized, the new closing date would be April 30, 2013. Ms. Mahmoudi thanked EC for their continuous collaboration. 36. Ms. Mahmoudi closed the session by thanking the committee members for their time and the lively discussion, and welcomed any further inputs to the proposed activities of the AIR project. She particularly highlighted and thanked Mr. Kinfe for all documentation and reports he prepared. She also urged TC members to continue to think on how more activities can be undertaken in the future, particularly as the project shifts its focus to Project Development Objective 2: Provision of technical assistance to AU Member States. Cleared with: AUC, EC, AfDB, IOM and WB colleagues Minutes was prepared by Mr. Kinfe and Ms. Salim Abubaker, March 5, 2012 8

Attachments: (1) General Principles for Remittance Services (GPs) (2) AIR Project Flash Report of February 22, 2012 (3) AIR Project Implementation Plan of June 2010- January 2012 (4) AIR Status (Progress) Report of January 2012 (5) AIR Organization Structure Report Final Draft (6) Commission Report on AIR Preparatory Project and Proposed Organizational Structure (7) AUC criteria for hosting the AU Organs (8) AIR Cost-Benefit Analysis Report First Revised draft 9