Remittances: From Europe with love

For decades, the flow of immigrants’ money around the world was largely unnoticed feature of the global economy. Not anymore: as more people than ever cross borders to live and work abroad, the size of these remittances has increased significantly.

 

For the immigrant in Europe and America, the road to success does not run smooth. Yet, despite all their struggles to survive and the meagre income they earn, these immigrants manages to send a little pocket money back to families in their home countries. For decades, the flow of immigrants’ money around the world was largely unnoticed feature of the global economy. Not anymore: as more people than ever cross borders to live and work abroad, the size of these remittances has increased significantly.

 According to the available published evidence, more than 250 million people lives outside their countries of birth. Not only that, over 750 million people migrate within their countries.¹ If the past ten years teaches us anything, it’s that demographic forces, globalization, and climate change will increase migration pressures in the coming decades. This trend will even increase the level of remittances more. Broadly speaking, economic migration has become so widespread that global remittances is now more  than two times larger than total global aid budget (see table 1).

Table 1: Capital Flows to the Developing World (2014)

Type	Amount($ Billion)
Remittances by Immigrants	440
Foreign Direct Investment	733
Portfolio Flows	410
Foreign Aid	175

Source: World Bank²; The Economist³

 

Not only that, many countries depend on migrant remittances. In India, Philippines and Tajikistan, for instance, migrant remittances are one of the driving forces behind their economies: they are worth 36 percent of India’s GDP, 10 percent of Philippines GDP and 42 percent of Tajikistan’s GDP.

The power of money

The obvious effect of migrant remittances is to make a place richer. Take Vennicode, a backwater village in Kerala, India. It has new houses and brand new private school built with money sent home by people working in Dubai, Oman and other countries. It also has huge advertisements for businesses like jewelry shops and has much more traffic than its narrow roads can handle.⁴

It should be noted here that even before mass migration began in the 1970s, Kerala was already one of the wealthy states in India. In fact, when compared to the national average, Kerala is now about 50 percent wealthier per head.⁵ Its migrant population are well-educated and disproportionately Muslim. Also, its families have done best. But they do have some poor families whose members have mostly stayed put. Because of this, Kerala is now also one of the most unequal states in India.⁶

The biggest beneficiaries of remittances last year are India and China, with each country receiving $60 billion. This was followed by Philippines ($24 billion), Mexico ($24 billion), and Nigeria ($21 billion). Egypt is the sixth largest beneficiary. As a matter of fact, the value of remittances in Egypt have surged from less than $9 billion in 2008 to almost $18 billion last year.⁷

But there is one problem with migrant remittances. Though there is nothing they can do about it at the moment, the migrants don’t really like those companies scrambling to capture as much as they can from these multi-billion dollar flows. The reason is obvious: in many cases the transfer fees can eat up more than 20 percent of the money the migrants send home.

Yet remittances are very useful to those family members that receive them. Generally speaking, when money flows from abroad, the family members who receive them naturally stop working back-breaking jobs. This shift is very beneficial, especially for children. For instance, the Philippine peso collapsed during the Asian financial crises of 1997-1998. Philippine migrants responded by increasing the value of remittances they sent home to their relatives and families. The affected families pulled their children out of jobs and sent them back to school. According to Western Union, a money transfer firm, nearly 30 percent of the money that flows through its system is spent on education – tuition, books, and so on.⁸

In some countries, especially those with small economies, remittances can account for significant proportions of their national income. The value of remittances received by families in Tajikistan and Liberia, for instance, is equivalent to 47 percent and 31 percent of their GDPs respectively.⁹ Also in many developing countries, especially those in Africa, South America and some parts of Asia, the money migrants sent home is worth more than the aid they receive. Good examples are Mexico, Guatemala, Bangladesh and Senegal, where migrant remittances are larger than foreign investment and aid  combined.¹⁰

According to World Bank’s estimates, migrants in the UK sent nearly $4 billion in remittances to India in 2011. When we compare this to the $450 million in UK aid India received that year, we will be correct to infer that it was indeed a terrific boost to that country’s economy in 2011. Bangladesh immigrants who live in UK also sent a total of $750 million home to relatives and family members in 2011. This is equally a significantly large amount when compared to the $370 million of foreign aid it received that year.¹¹

The reason for the rise in size of migrant remittances is simple: people, especially the migrants, feel an obligation to help their families and relatives back home. It is hard to see an immigrant who do not feel a sense of obligation or a sense of connection with the people, especially the relatives at the home country.

Even though there was a dip in 2008/2009 due to the recession, the remittance phenomenon has been largely recession proof. The biggest complaints from the migrants is not about the amount of money they sent home regularly. Rather, it is about the cuts taken by the banks and transfer firms. In 2009, the G8 countries made a pledge to lower the global cost of sending money to an average of 5 percent by 2014.¹² That was last year, and the average fees is still about 9 percent, which means that it cost $9 for every $100 sent. And in some places or banks, the remittance fees can be as high as 20 percent.

The word on the street

It is worth bearing in mind that the rising interest in remittances and the impact they could have in reducing global poverty does not mean that we should ignore the challenges migrants faces in foreign countries, especially those related to abuse and exploitation. Also, the psychological toll on children is another concern: when parents work thousands of miles away from home, it would seem as if their children are growing up as virtual orphans. For example, some villages in places like Philippines are almost devoid of parents. In such villages, the grandparents are literally left to shoulder the burden of childcare.¹³

Meanwhile in January 2013, Saudi Arabia executed Rizana Nafeek, a Sri Lankan domestic worker, for an alleged killing of a baby in her care.¹⁴ Her execution by the Saudi government despite numerous clemency pleas by the Sri Lankan authorities and other groups highlighted the often brutal conditions faced by migrant workers there.

Foreign workers began migrating to Saudi Arabia soon after oil was discovered in the kingdom in the late 1930s. Today, the kingdom has one of the largest migrant population in the world. So naturally, money transfer from migrants who live inside the kingdom to their families back home is huge: at $28 billion in 2011, it was the third largest amount across the globe that year.¹⁵

One thing is for certain: at this time of global economic and financial distress, attention to the plights as well as the rights of migrants is very important. As the list of rich countries forced into austerity by the markets continue to grow, we are seeing more discrimination against migrant workers, proposed immigration laws that allows the police to profile migrants with impunity, and xenophobic rhetoric that encourages violence against undocumented migrants.

Although an international convention on migrant workers’ rights does exist, only a few countries have ratified it. And those that did are mainly the developing countries where majority of the migrant workers come from. The EU and the Gulf countries has not signed it, nor have the United States.

 

References

¹Merrell   J. Tuck-Primdahl, I. C. (2014). Migration and Remittances. Retrieved September 28, 2015 from http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20648762~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

²World Bank (2015): Migration and Development Brief. Retrieved September 28, 2015 from http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief24.pdf

³Remittances: Like Manna From Heaven. (2015, September 5). The Economics. Retrieved September 28, 2015 from http://www.economist.com/news/finance-and-economics/21663264-how-torrent-money-workers-abroad-reshapes-economy-manna.

⁴Ibid p. 73

⁵Ibid

⁶Ibid

⁷Claire P. (2015): Migrants’ Billions Put Aid in the Shade. The Guardian. Retrieved October 1, 2015 from http://www.theguardian.com/global-development/2013/jan/30/migrants-billions-overshadow-aid

⁸Remittances: Like Manna From Heaven, op. cit., p. 74

⁹Claire P. (2015): Migrants’ Billions Put Aid in the Shade, op. cit., para. 10

¹⁰Ibid

¹¹Ibid

¹²Anderson M. (2014): Global Remittance Industry Choking Billions Out of Developing World. The Guardian. Retrieved October 5, 2015 from http://www.theguardian.com/global-development/2014/aug/18/global-remittance-industry-choking-billions-developing-world

¹³Claire P. (2015): Migrants’ Billions Put Aid in the Shade, op. cit., para. 18

¹⁴Sri Lankan maid Rizana Nafeek beheaded in Saudi Arabia. (2013, January 9). BBC.  Retrieved October 7, 2013 from http://www.bbc.com/news/world-asia-20959228.

¹⁵Claire P. (2015): Migrants’ Billions Put Aid in the Shade, op. cit., para. 20