Remittances:Opportunity or Challenge?

The Facts Laborers are flocking to countries in larger

numbers than ever before. The Philippines, with a tenth of the country’s population of

85 million works overseas, it is the third-largest migrant-sending country in the world, after Mexico and India.

They send 3000+ workers overseas everyday- and the number is increasing.

The payments that they send home to their family and friends – called remittances – totaled $11.6 billion in 2005: 10 per cent of the country’s gross domestic product.

The Facts There is an ever increasing dependence

between developed countries and developing countries: The United States needs Latin Americans to supply its

labor market The U,.K. depends on Ireland, eastern Europe, the New

Commonwealth, and Pakistan for labour Germany depends on Greece and Turkey These migrations improve business profitability and

reduce the costs of production, The host countries, in turn, depend on the flows of

remittances that result from the migration of labor.

The Facts Total Global Remittances from foreign workers to their home workers

reached $318 billion in 2007 Up from $170 billion in 2002 Most money goes to LEDCS Accounts for more than double the value of Foreign Aid.

The largest Recipient Region Latin America Remittances account for more than 10% of GDP and exceed the dollar flows of

the largest export product in almost every country in the region. Percentages ranged from 2% in Mexico, to 18% in El Salvador, 21% in

Honduras, and up to 30% in Haiti.

The largest Recipient Countries China, India, and Mexico China and Mexico account for more than 1/3 of Remittances to developing

world.

Top recipient countries

But are Remittances an effective combat of

disparities?

Case Study: Sub Saharan Africa

ODI: Official DevelopmentAssitance

FDI: Foreign Direct Investment

Challenges for Africa Promoting Remittances = Promoting Migration

Removal of younger, educated population Decline in local market/pulling power Reduced Workforce Reduced purchasing power Closure of local services Rural areas are cut off from international remittances Lack of Data on remittances to rural areas

Remittances are expensive Within Africa, costs can be as high as 25 per cent of the sum.

Few Banks or Transfer Centers The number of payout locations across the entire African continent is the same as 

Mexico, which has only a  tenth of Africa’s population.

Challenges for (rural) Africa

Obstacles (e.g. Distance) Between 30 and 40 per cent of all remittances to Africa are

destined to rural areas where many recipients have to travel great distances to collect their cash.

Migration within the continent Rural areas are cut off from international remittances

Weak financial system Little access to formal banking High cost and little saving/investment

Benefits Improved Welfare and Livelihood of recipients

The recipients commonly spend the funds on necessities such as health, education, food, and clothing.

Increased local investment in businesses and infrastructure. a $10 million hospital in Touba, Senegal, a new

international airport in Kerala, India, and a metal bridge in Jomulquillo, Mexico.

Opportunities Strengthen the financial sector

Bank rural areas by expanding the kinds of institutions able to conduct remittances services to include

microfinance institutions and post offices, the number of payment points would more than double.

Use new technology (e.g. SMS and Internet)

Use Informal Channels as an opportunity

Develop migration/diaspora policies Africa in early phase of migration management

Economic polices, diaspora accounts, diaspora bonds, co-financed development

Curb brain drain

Conclusions…….

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Overall Benefits of Remittances Leads to Narrowing the Rural–Urban Income Gap

and Reducing Regional Disparity

Reduces Poverty

Pays for Basic Education and Health Care

Promotes Consumption and Investment

Overall Benefits of Remittances Remittances help developing countries

cope with economic crises, improve their credit ratings, and help raise external financing.

BUT……

Remittances can cause problems too.. Large inflows into small economies can cause the domestic

exchange rate to appreciate thereby making tradable items less profitable.

Individuals and Governments may develop a dependency on large flows of remittances.

Can create an increase in disparities within a society (Haves vs. Have nots)

Significant reductions in remittances can collapse economies: the "ghost-town" phenomenon.

However the Reality is….. Like Aid and Private Investment, Remittances are

extremely susceptible to Global Financial Trends In 2009 there was a sharp decline (between 5% and 8%) in remittance flows to developing countries, resulting in increasing financial hardships

Questions

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