billion. Presently the bulk of this saving is invested outside Africa. African governments and private corporations can potentially tap into these resources by issuing diaspora bonds. Diaspora bonds can also provide an instrument for repatriation of Africa’s flight capital, estimated at more than $170 billion (as discussed). Diaspora bonds could potentially raise $5 billion to 10 billion annually by tapping into the wealth of the African diaspora abroad and the flight capital held abroad by its residents.<sup>22</sup> While the size of the potential market for diaspora bonds is indeed impressive, it may be difficult for some unrated Sub-Saharan African countries that are characterized by high risks to issue diaspora bonds. Some of the constraints that Sub-Saharan African countries may face in issuing diaspora bonds include weak and non-transparent legal systems for contract enforcement; a lack of national banks and other institutions in destination countries, which can facilitate the marketing of these bonds; and a lack of clarity on regulations in the host countries that allow or constrain diaspora members from investing in these bonds (Chander 2001; Ketkar and Ratha 2007). However, because of recent debt relief initiatives and improving macroeconomic management, many Sub-Saharan African countries are in a better position to access private capital markets than anytime in recent decades.

# **_Reducing remittance costs_**

Reducing remittance costs would increase remittance flows to Sub-Saharan Africa. SubSaharan Africa is believed to have the highest share of remittances flowing through informal channels among all regions (Page and Plaza 2006).<sup>23</sup> This is partly because of the high cost of sending remittances in Sub-Saharan Africa. For example, the average cost, including foreign exchange premium, of sending $200 from London to Lagos, Nigeria, in mid-2006 was 14.4 percent of the amount, and the cost from Cotonou, Benin, to Lagos was more than 17 percent (Ratha and Shaw 2007). Reducing remittance fees would increase the disposable income of remitters, encouraging them to remit large amounts and at greater frequencies. It would also encourage remittance senders to shift from informal to formal channels.

Estimating the additional remittance flows that would result from a decrease in remittance cost is complicated by several factors. For example, remittances sent for an immediate family emergency may not be responsive to costs. However, estimates based on surveys of Tongan migrants indicate the cost elasticity to be in the range of .22, that is, a 1 percent decrease in cost would increase remittances by 0.22 percent (Gibson, McKenzie, and Rohorua 2006). For example, halving remittance costs from the current high levels, from 14

> 22 South Africa is reported to have launched a project to issue Reconciliation and Development (R&D) bonds to both expatriate and domestic investors (Bradlow 2006). Ghana has begun marketing the Golden Jubilee Savings Bond to the Ghanaian diaspora in Europe and the United States.

> 23 Page and Plaza (2006) estimate that almost three-quarter of remittances to Sub-Saharan African Africa were through unofficial channels.

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