Remittances and Development Chapter 6 Introduction • The flow of remittances into developing countries is attracting increasing attention because of their rising volume and their impact on the receiving countries. • Moreover, there is evidence that such flows are underreported. Remittances through informal channels could add at least 50 percent to the globally recorded flows Introduction • Remittances are transfers of money across national boundaries by migrant workers. • Remittance flows have grown in the world economy over the longer-term as the scale of migration between countries has grown. • Migrants sent about US$550 billion to developing countries in 2018, ten times more than they did just 20 years earlier. • These ‘workers’ remittances’ are more than five times the value of all foreign aid for development. Introduction • Small countries like Bosnia and Herzegovina, Haiti, Lesotho, Moldova, and Tonga are among the most dependent on remittances. • Some countries are heavily reliant on remittances, for example, half of all Tongans work abroad, and many send money back home Introduction • Remittances flowing into developing countries are attracting increasing attention because of their rising volume and their impact on recipient countries • This makes it important to continue to analyse the contribution of migrants’ remittances to development. • The growing importance of remittances as a source of finance is reflected in the fact that remittance growth has outpaced private capital flows and official development assistance (ODA) over the last decade as can be seen on the next page Remittances and Other Inflows of Capital to Developing Countries Remittances Received by Region Introduction • Remittances are a private source of capital which should not to be equated with other international financial flows. • However, they can help lift millions of migrant families out of poverty, touching the lives of up to one billion people, either as senders or recipients. • Remittances allow migrants and their 800 million family members to improve their access to health, education and housing, thereby helping achieve their own Sustainable Development Goals (SDGs). Remittances can 1. Reduce poverty by increasing the income of the recipient. 2. Help smooth household consumption by responding positively to adverse shocks(for example, crop failure, job loss, or a health crisis); 3. Ease working capital constraints on farms and smallscale entrepreneurs; 4. Lead to increased household expenditures in areas considered to be important for development, particularly education, entrepreneurship, and health Importance of remittances • The numbers are compelling. Many countries like Egypt, Nepal, Sri Lanka, Yemen, South Sudan, and Indonesia are also highly dependent on remittances. • For over 31 countries around the world, remittances provide more than 10% of the total GDP. • Remittances positively impact economic growth by providing an alternative way to finance investment and helping to overcome liquidity constraints, especially in developing countries. Importance of remittances • In many countries, remittance serves as a lifeline outranking the amount that the country receives from both tourism and national exports combined. • The money sent back home not only put food on their plates but also generate jobs, build roads, bridges and overall economic development. • Data on International Remittance have also shown a positive impact on education, healthcare, and entrepreneurship. Importance of remittances • Migrant remittances provide an economic lifeline to many countries. • India received $70 billion in remittances in 2012, more than three times the size of foreign direct investment. • Egypt received $21 billion, three times the value of its revenue from the Suez Canal. • In many smaller countries, such as Tajikistan or Liberia, remittances are between one-third and one-half of the national income. • . Introduction • Remittances are the largest source of foreign exchange in many countries, especially poor or conflict-affected countries, providing critical support to their balance of payments. • At times, however, large remittance inflows can lead to currency appreciation that needs to be addressed by improving the business environment and increasing productivity in the economy • As a result, remittance-receiving households in rural areas are becoming more financially independent and have growing access to financial services and products how remittances contribute to the development of remittance-dependent countries. 1. Remittances uplift families in developing countries and are less susceptible to wastage or corruption compared to foreign aid. – Rather, they serve as insurance policy when the family is in trouble, facing difficult times or hardship, acting as a stabilizer to home country conditions. – Unlike development aid that must go through government, remittances directly reach the migrants’ family members. 2. 3. 4. Remittances fuel a valuable source of foreign savings in less financially developed nations – the most significant source of foreign exchange in Mexico is remittances. In fact, Remittances are larger than FDI in Mexico in Morocco, they are larger than tourism receipts. how remittances contribute to the development of remittance-dependent countries. 5. Remittances often provide the funding needed by startups in countries with fragile economies. For example, according to the Department of International Development, United Kingdom (DFID UK), almost 80% of startup capital for businesses in Somalia is funded by remittances. – Remittances are dollars wrapped with care, migrant sent home for food, shelter, daily necessities, family events, for funding the education of siblings and extended family members, for health care for the elderly, and serves as seed capital or continuous business investment. 6. Unlike private investment funds, remittances do not flow back to the source country at a sign of trouble or unfavorable government policy in the home country. 7. For sure, the money transferred home tend to be more stable than other kinds of external capital flows, such as private investment. Remittances To Sub-Saharan Africa • Most of the reported flows go to regions other than sub-Saharan Africa (SSA), but SSA has still been part of the overall rising global trend. • the impact of remittances at the aggregate level is confined mostly to Latin America and South Asia, where remittance volumes swamp those going to SSA. Remittances To Sub-Saharan Africa • Africa receives just 4 percent of total remittances—by far the smallest share—to developing countries and just 33 percent of those to India, the top recipient. Remittances To Sub-Saharan Africa • Sub-Saharan Africa has been part of the increasing global trend; remittances to SSA have increased by over 55 percent in U.S. dollar terms since 2005 • However, the recorded remittances are only a small fraction of total remittances to SSA. • Informal remittances to SSA are relatively high at 45–65 percent of formal flows, compared to only about 5–20 percent in Latin America. • For some countries, remittances are also an important source of foreign exchange. For Lesotho, Cape Verde, Uganda, and Comoros, for instance, remittances have amounted on average to more than 25 percent of export earnings Remittances To Sub-Saharan Africa • While remittances to developing countries have more than doubled in the last decade, they have grown little in Africa • In sub-Saharan Africa, Nigeria is the largest recipient, taking between 30 and 60 per cent of the region’s receipts. • Lesotho receives the equivalent of between 30 and 40 per cent of its gross domestic product (GDP) from workers abroad, mainly in neighbouring South Africa. • In Eritrea, remittances represent 194 per cent of the value of exports and 19 per cent of GDP. Negative impact of Remittances • Families remain heavily reliant and may fall back into poverty if the migrant stops supporting them • For example, ‘the Kayes region of Mali is extraordinarily dependent on remittances, which have improved the lives of residents, and added schools and clinics, but do not seem to have led to the establishment of large numbers of businesses that promise stay-at-home development’ Negative impact of Remittances • remittances cannot be a substitute for a sustained, domestically engineered development effort. Negative impact • Even where remittances do help boost the income and protect recipient families from risks, this may not be a reliable arrangement long-term. For example, research in Ashanti villages in Ghana demonstrates that while remittances can be an important factor in recipient families’ well-being, often families remain heavily reliant and may fall back into poverty if the migrant stops supporting them
