Remittance gives boost to developing economies

Money sent home by economic migrants working in foreign countries exceeded $300 billion in 2010, and this vast and growing tide of income needs to be safeguarded and channelled so that it does the most good for families and economies in the world’s poor nations, experts said at a two-day UNCTAD meeting titled 'Maximising the development impact of remittances' on February 14–15.
More can be done to ensure that families and developing-nation economies derive lasting benefit from these wages earned overseas, speakers said. They stressed that less of this money should be lost in transmission, and more should be invested in the stable, broad-based social and economic growth of economies that originally were weak enough for citizens to feel compelled to leave and work elsewhere.
“Remittances account for about two per cent of the gross domestic product (GDP) of all developing countries, and for higher percentages in many,” UNCTAD deputy secretary-general Petko Draganov said in opening the meeting. “In Lesotho, Nepal, Samoa, Haiti and Bangladesh, these money transfers make up more than eight per cent of GDP," he said, adding that the effects across countries are varied, though remittances have reduced poverty at the household level in many developing countries.
A recent UNCTAD study found that in countries where remittances make up five per cent or more of GDP, on average a 10 per cent rise in remittances leads to a reduction of 3.9 per cent in the poverty headcount ratio. "Evidence shows that a significant amount of remittance transfers to developing countries is spent on household consumption and human capital," Draganov said, “Such emphasis on food, education, housing, health and related purchases can ripple outwards through the domestic economies of poor nations and – if managed well – can create jobs and business opportunities that raise living standards and keep future potential migrants at home.
However, Draganov and others added that the costs of sending money from overseas could be high – the current average fee was around 8.7 per cent – and that there was “still a lack of safe, reliable, accessible transfer systems for remittances. For some countries, excessive margins are charged.
"Purnima Mane, deputy executive director of the United Nations Population Fund, said that women now outnumbered men among economic migrants in the wealthy nations of Western Europe and North America. Although they tended to earn lower wages than their male counterparts, evidence indicated that they sent a higher proportion of their incomes home, and that they sent this money more dependably and more often. “Often they are the only contributors to family income,” she said, adding that there has been too little analysis of the relation between gender and remittances.
Because of the frequency of these financial transfers, women migrants – and their children back home – are especially hurt by high transaction costs, she remarked.
“Governments should try to fashion incentives so that families receiving remittances invest any surpluses in ways that spur development in their home nations,” recommended William Lacy Swing, director-general of the International Organisation for Migration.Migration is "the world’s oldest development strategy – its oldest poverty-eradication strategy,” he told the meeting. "If you’re poor where you are, you move."
The challenge, he said, is to use the wealth returning in the form of remittances so that it spreads economic growth broadly in the poorer, recipient nations. "A telling and valuable characteristic of these international flows of money is their ’private‘ character,” said Assane Diop, executive director for Social Protection at the International Labour Organisation. “The money goes first and foremost to families,” he said, “to housing, food, education, health needs, children’s needs. It has a very direct impact on poverty reduction.” Diop termed remittances as being 'much better' as a way of distributing wealth in developing countries than foreign direct investment (FDI), although flows of FDI were much greater in monetary terms.
Speakers at the meeting considered that an integrated and coherent policy, regulatory and institutional framework, for migration, remittances and development, was a key component to national development strategies. Expanding access by sending and recipient families to banks -- many, particularly in rural areas, do not have accounts -- and offering a variety of options for sending the money home, such as through post offices, microfinance institutions, banks, the internet, and mobile phones, could lower transfer costs, speakers said.