Remittances make the world go round

Remittances to Africa and Asia have been identified as a key source of development funding, sometimes outpacing official development assistance, and a lifeline for millions of families in poor countries. In its new report 'Global Development Finance 2005: Mobilising Finance and Managing Vulnerability' the World Bank noted that "workers' remittances provide valuable financial resources to developing countries, particularly the poorest". "Remittances to developing countries from overseas resident and non-resident workers are estimated to have increased by US $10 billion (8 percent) in 2004, reaching $126 billion," noted the report [http://siteresources.worldbank.org/ ]. That increase was on top of a $17 billion rise in 2003. "Much of the $10 billion increase in 2004 occurred in low-income countries, where remittances rose by $6.7 billion (18 percent). Since 2001, remittances to developing countries have increased by $41 billion (almost 50 percent)," the report said. Remittances were more evenly distributed than capital flows to developing countries. "Even though most top recipient countries are large, remittances to many small developing countries are significant as a share of GDP [gross domestic product] or in per capita terms. Examples include Lesotho, Tajikistan, and Tonga," the report noted.

TAJIKISTAN: Motoring through the small villages of the Bahor district, about 20 km south of the Tajik capital, Dushanbe, all seems well as spring gives way to early summer and local people tend their wheat fields, orchards and dairy herds. But there is an absence of men in the fields, and in the cafes around the district. [More...]

However, the study pointed out that the data only represented officially recorded remittances. "Flows through informal channels ... are not captured in the official statistics, but are believed to be quite large. Also, a significant portion of remittances flow through formal channels that are not included in the official statistics." SOUTH AND CENTRAL ASIA India is far ahead of other developing countries in terms of workers' remittances from abroad, receiving $23 billion in 2004, up from $17.4 billion in 2003. According to Tajikistan's national bank, migrant workers sent home almost US $260 million in 2004, while official estimates of remittances by overseas Pakistanis reach around $7 to $8 billion each year, of which less than one billion goes through the official banking system. Migrant workers from Kyrgyzstan dispatch home an estimated $420 million annually. The World Bank noted that workers' remittances are a large and stable source of foreign exchange in poor countries. SUB-SAHARAN AFRICA A recent study on the importance of remittances to Africa concluded that the continent received 15 percent of all remittances (US $80 billion) sent to poor countries in 2002. This is a significant sum of money, yet fewer than two-thirds of African countries (and only one-third of sub-Saharan countries) actually report remittance data. "For a capital-poor continent like Africa you can't ignore this source of income - it's a stable flow of income, unlike private capital inflows, which can be volatile," said researcher Mills Soko. "In Africa it's not accorded the attention it deserves. Countries like Brazil and India have done a lot to make inducements available to expatriates to invest in [their home countries]."

COMOROS: Remittances from Comorans living abroad are seen as a lifeline for impoverished communities at home, where there is little hope that the government will be able to meet their daily needs. [More...]

He noted that "a key problem [in African countries] is that they either have weak or non-existent financial systems and can't absorb remittance inflows" through the formal sector. A World Bank study, 'Migrant Labour Remittances in Africa: Reducing Obstacles to Developmental Contributions', said financial and monetary policies and regulations have created barriers to the flow of remittances and their effective investment. [www.worldbank.org] "Flows through informal channels are not captured at all. The documented benefits of remittances would be even greater if the substantial unrecorded flows were estimated and taken into account," the report commented. Remittances are a tremendously important source of finance and foreign exchange to many African households and nations. They help to "stabilise irregular incomes and to build human and social capital", the World Bank pointed out. Remittance recipients tend to be better off than their peers who do not receive remittances. "A few governments, recognising the valuable contributions of remittances, have facilitated foreign exchange transactions or provided investment incentives, such as matching grants. More could be done, however, especially in the context of the regulation of the financial industry. Restrictive licensing of money transfer services ... limits the potential impact of remittances in many areas," the report argued. African migration patterns - heavily defined by former colonial links, and cultural and linguistic affinities - drive remittances, generating substantial flows from Europe, South Africa and North America. Formal transfer methods include dedicated money transfer operations, such as Western Union, banks and foreign exchange bureaus. But where financial systems are weak or non-existent, they lead to the under-recording of remittances, discourage the investment of remitted funds, and promote the use of informal routes to transfer money.

SOMALIA: For the majority of Somalis, money sent by relatives and friends living abroad has been the single most important source of income since their country's economy collapsed in the 1990s. [More...]

According to the report, "remittances now constitute the second largest flow of external finance, well behind foreign direct investment, but far ahead of official development assistance". "Informal transfers and formal but unrecorded transfers add another order of magnitude to remittance flows, bringing the estimated total to as much as $200 billion - more than foreign direct investment," the study explained. This excludes domestic remittance flows resulting from rural-to-urban and rural-to-rural migration, which can be substantial sources of income for many more households - even more than overseas remittances. In Africa a handful of countries dominate the remittance picture: of the $12 billion remitted in 2002, North Africa received $8 billion, while sub-Saharan Africa got $4 billion. "Until 2001, Egypt was the largest receiver on the continent for a decade. In 2001, Morocco's remittance receipts overtook those of Egypt. In sub-Saharan Africa the single largest receiver was Nigeria, which receives between 30 [percent] and 60 percent of remittances to the sub-Saharan region, followed by Lesotho, Sudan, Senegal, and Mauritius. Tunisia, Sudan, and Mozambique were also important recipients," the study found. The top five remittance-sending countries between 1990 and 2001 were South Africa, Cote d'Ivoire, Angola, Egypt, and Botswana. Egypt and Cote d'Ivoire were thus key receivers as well as senders, "a reflection of migration patterns". However, civil strife in Cote d'Ivoire is likely to have changed the country's status as a remittance sender. The world's chief sources of workers' remittances to developing countries in 2001 were the United States, Saudi Arabia, Germany, Belgium, Switzerland, and France. However, the United States total of $28.4 billion "may be grossly overreported ... as the United States is the main hub of correspondent bank transactions", the authors pointed out. "It is very likely that the top sending countries are the same as the top destinations for migrants - France, Italy, Saudi Arabia and the United States," they said.

PAKISTAN: Nosheen Munir, 34, who lives in the small town of Kharian, some 160 km from the city of Lahore in eastern Pakistan, often cannot understand her own children. Her two sons and a daughter, aged between five and 10, speak fluent Norwegian, as well as Punjabi, the native tongue of their parents. [More...]

MORE TO COME Counting only officially recorded receipts, remittances in 2002 represented 1.3 percent of GDP in sub-Saharan Africa and 2.2 percent of GDP for the Middle East and North Africa. In South Central Asia, a total of $32.7 billion was received by Bangladesh, Pakistan, Sri Lanka, and India from workers abroad. Shanta Devarajan, the World Bank's chief economist for the South Asia region, said in a statement that remittances to the region increased significantly in 2004, rising from $26.8 billion in 2003 to $32.7 billion, an amount that greatly exceeded the $22.7 billion in total capital flows - private and official - to the region. "The large increase in 2004 stems from remittances sent to India, which surged from $17.4 billion in 2003 to $23 billion in 2004. The region as a whole receives 26 percent of remittances to all developing countries." Surveys of households, anthropological and migration research have indicated the importance of remittance flows. They contribute to improved standards of living, better health and education, and human and financial asset formation. In Nigeria, the single largest remittance-receiving country in sub-Saharan Africa, crowds gather daily at 8 a.m. at the Western Union money transfer office run by First Bank in the central business district of the commercial capital, Lagos. As soon as the doors open, people pour in to process remittances sent by relations from around the world. "We're always under pressure here," said bank official Bola Adebanjo. "There is hardly any let-up from customers who want to collect money sent to them until the close of business at 4 p.m." First Bank has more than 200 branches across Nigeria, where similar scenes are repeated daily. "I can't say how much the business of money transfer is worth ... but it is possibly our most important banking activity now," added Adebanjo.

ZIMBABWE: In a bid to boost foreign exchange reserves, the Zimbabwean government has attempted to persuade its citizens abroad to channel their remittances through formal transfer agencies. [More...]

Though official figures are not available, economists and financial analysts believe that remittances from Nigerians in various parts of the world now exceed $1 billion annually, ranking second only to oil exports as a source of foreign exchange earnings. Just as it is difficult to know Nigeria's exact population - estimates range between 126 million and 150 million - it is hard to quantify the number of Nigerians living outside the country, but it is certainly several million. The Western Union franchise has been a profitable exercise for First Bank, prompting other banks to follow suit. In an effort to cash in on the booming money transfer industry, the United Bank for Africa, another major Nigerian bank, has bought a MoneyGram franchise. Nigeria permits the operation of foreign currency denominated accounts, particularly in US dollars, British pounds and euros, and large amounts of transfers from migrants abroad also come in via normal bank transfers. Other systems are thriving too - informal money transfer systems are run by bureaux de change and private businesses, which simply involve paying money to an agent abroad, who then pays the local currency equivalent to a recipient in Nigeria. "These inflows from abroad have been a key factor to the recent stability of the Nigerian naira against other international currencies in the past two years," said economist Frank Madu. For many Nigerians, faced with two decades of economic stagnation, corruption and mismanagement by a succession of military and civilian governments, emigration is seen as a panacea. Thousands of professionals, especially scientists, academics and those in the medical fields, have emigrated, mainly to Western Europe, the United States and the Persian Gulf states. According to the World Bank, there are at least 22,000 Nigerian medical doctors in the US alone. At the same time, unskilled Nigerians with little education have gone abroad to work as street cleaners, security guards and factory hands, or have become involved in criminal activity in places as disparate and far-flung as Japan, Italy, Australia, Brazil, South Africa and South Korea.

NEPAL: Life has changed beyond all recognition for Sanchita Magar, 20, an illiterate woman from a poor village in Makwanpur district, 128 km east of the capital, Kathmandu. Magar is just one of an estimated 1.2 million Nepalis working abroad in nearly 40 foreign countries.. [More...]

"It is hard to give figures, but I can say from observation that at least one-quarter of all Nigerian families have one or two relations who have gone abroad," said Okhai Okome, a university lecturer in sociology. "For these families, the people living and working abroad are usually their most important source of income." INFORMAL TRANSFERS The study 'Migrant Labour Remittances in Africa: Reducing Obstacles to Developmental Contributions' noted that informal systems of remittance transfers are similar in Africa, Asia and the Middle East. "It is still very common to send money with friends, relatives, and drivers of taxis or buses - or to carry it oneself. Other informal systems are modelled on 'hawala' or 'hundi' services, or are single-destination services provided by individual business people. Indian Diaspora and Somali refugee communities in East Africa, for example, have long had such systems," the report noted. The hawala system works through the use of individual "brokers", who accept the money at one end of the payment chain, and others who deliver it at the other end. "Hawala exists and operates outside of, or parallel to, 'traditional' banking or financial channels. It was developed in India, before the introduction of Western banking practices, and is currently a major remittance system used around the world. It is but one of several such systems," said Interpol. The system is distinguished from other remittance methods by trust and the extensive use of connections, such as family relationships or regional affiliations. Unlike traditional banking, hawala makes minimal (often no) use of any sort of negotiable instrument. Transfers of money take place based on communications between members of a network of 'hawaladars', or hawala dealers, who do so for a fee - for example, 5 percent of the total amount being transferred. "Most informal services charge 3 [percent] to 5 percent, although substantially higher rates are not uncommon. The fees of informal services are often lower than those of money transfer operators ... and some informal services charge no fees, realising revenue solely from gains on foreign exchange," the 'Migrant Labour Remittances in Africa: Reducing Obstacles to Developmental Contributions' report found. Informal operators also offer services that banks and other formal agents have neglected or deliberately shunned by choosing to focus on corporate and high-income individuals. For example, rural regions tend to be much less well served by formal agents, but "many remitters, ... need to send money to locations with poor financial infrastructure in which banks ... have little or no contact," the World Bank report noted. Some informal systems such as hawala are fast, "almost instantaneous; others take one to three days", while "most bank transfers, by contrast, are quoted as taking three to five business days".