Border Friction Drives Up Borrowing Costs, Cuts Investment Across Africa

Remittances, corporate earnings, and continental trade flows all depend on the same underlying infrastructure: the financial and logistical apparatus that moves people, money, and commerce across borders. When that apparatus is disrupted by xenophobia, the costs show up in interest rates, investment volumes, and employment figures. The mechanism is not abstract. It is measurable.

Africa receives approximately $100-billion annually in remittance flows from migrants sending funds home. That sum exceeds Foreign Direct Investment into the continent by more than double and surpasses development finance by 1.6 times. Within that total, $20-billion moves between African countries themselves. South Africa’s portion of continental remittances stands at roughly $1.25-billion yearly, with about $250-million arriving from other African nations and approximately $1.5-billion flowing outward from South African-based migrants to their home countries.

These transfers are not abstractions. They represent disciplined saving by people separated from loved ones and familiar surroundings, and for receiving households they pay for food, rent, school fees, transport, medicines and basic dignity. At the macroeconomic level, they strengthen foreign exchange earnings and balance-of-payments resilience.

Yet remittances tell only part of the story.

Three interconnected issues tied to migration carry even greater significance for the financial sector and national economies: the impact of migrants on host economies, the political dimensions of migration and their effect on multinational corporations, and broader openness to flows of ideas, goods, capital and people.

Research is clear on the first of these. A 2025 meta-analysis published in Economies examined 41 studies and found that immigration produces positive and statistically significant impacts on receiving economies. Critically, it shows that immigration tends to reduce unemployment in host countries. Migrants are more than workers. They are consumers, tenants, commuters, savers, borrowers, traders and entrepreneurs. They rent accommodation, purchase food, use transport services, pay school fees, establish small businesses and generate employment for local residents. They fill labour shortages, broaden skill bases and deepen commercial connections between origin countries and new homes.

The claim that migrants contribute nothing to government revenues is demonstrably false. Those in formal employment pay income tax; those in informal economies pay value-added tax on purchases. Rapid migration can create adjustment costs in particular sectors and localities, requiring capable government management. Overall, however, the evidence shows migration benefits growth while its effects on local workers remain small and frequently positive.

South African multinational corporations operating across the continent face direct consequences from the political climate surrounding migration. Standard Bank earned R49-billion in headline earnings last year, with 40 percent, or R19.7-billion, generated in African countries beyond South Africa. The bank paid R10.3-billion in taxes across other African nations and R7.7-billion domestically. Similar patterns apply to firms in telecommunications, retail and industrial sectors that have invested heavily across Africa. These companies require trust from regulators, customers, employees, suppliers and governments across multiple markets. That trust is not guaranteed.

Investment flows between South Africa and neighbouring countries run in both directions. According to IMF data, South Africa’s stock of direct investment from African neighbours now exceeds R64-billion, while direct investment flowing from South Africa into the continent stands at approximately R500-billion. When citizens and policymakers elsewhere in Africa perceive South African firms as representing a society hostile to other Africans, those companies face regulatory pressure, reputational damage, consumer hostility and political suspicion. The damage extends beyond individual corporations to affect market access, operational licences, staff mobility, customer confidence and long-term franchise value across the continent.

Xenophobia worsens country risk perceptions and consequently raises the cost of capital. The practical result is straightforward: increased xenophobia produces higher interest rates, reduced investment and fewer jobs.

Meanwhile, well-managed migration functions as essential infrastructure for African economic integration. Migrants establish corridors of trade, information and finance. They often pioneer cross-border payment products, low-value transfers, diaspora savings mechanisms and small-business banking relationships that later support deeper commercial integration. These individuals serve as forerunners of African economic and financial integration, building the operational pathways that formal institutions later scale.

The African Continental Free Trade Area represents the scale of what is at stake. The UN Economic Commission for Africa estimates that full implementation of the AfCFTA by 2045 could increase intra-African trade by $276-billion, a 45 percent increase, and boost continental GDP by $141-billion. Achieving those outcomes requires more than low mutual tariffs. It demands efficient border processes, improved logistics infrastructure and economically rational rules governing human movement. Africa cannot capture the full benefits of continental free trade without welcoming neighbours to conduct business and work across borders.

The UK experience with Brexit offers a pointed comparison. One primary reason for Britain’s decision to leave the European Union involved slowing immigration from European neighbours. Current estimates put the cost of that decision at a reduction in UK GDP of 6 to 8 percent, investment of 12 to 13 percent and employment of 3 to 4 percent relative to EU membership. The emotional and political appeal of restricting movement is real. The economic foundation for doing so is not. The question for South Africa and its continental partners is whether the infrastructure for integration, human as much as physical, will be built or dismantled.