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DEVELOPMENT: Poor Increasingly Pay Own Way

Thalif Deen

UNITED NATIONS, Nov 2 2004 (IPS) - Seeking ”new and innovative sources of financing” to fight hunger and eradicate poverty, the United Nations is predicting a dramatic increase in remittances of earning from migrant workers worldwide homeward.

Although numbers vary, both the World Bank and the Inter-American Development Bank (IDB) estimate that migrant earnings sent home will soon rise to over 150 billion dollars annually.

Addressing a mid-October U.N. panel discussion, ‘Remittances by Emigrants as a Source of Financing for Development,’ Dilip Ratha of the World Bank called the issue “a hot topic in the financial world.”

Mexico reported a 25 percent increase in remittances, to 16 billion dollars in 2004, said Ratha, a senior economist at the bank. The Philippines’ total was an estimated eight billion dollars and India’s was 16 billion dollars, putting the total figure worldwide at 100 billion dollars.

”This has exceeded the level of official development assistance (ODA),” said U.N. Under-Secretary-General for Least Developed Countries (LDCs) Anwarul Karim Chowdhury. ”However, the amount sent through informal channels to most LDCs was estimated to be just as high,” he added in an interview.

A study commissioned by the IDB in May predicted that Latin American and Caribbean migrants living in the United States will send a record 30 billion dollars to their families and friends back home in 2004.

Ratha pointed out that in several countries, remittances are now the largest single source of foreign exchange, topping tea exports in Tajikistan, and amounting to over 30 percent of gross domestic product (GDP) in Tonga.

”Remittances flowed more to smaller countries because they exported more labour,” he added.

Addressing the European Parliament in Brussels in January this year, U.N. Secretary-General Kofi Annan said an increasingly large number of poor countries are reaping benefits from migrant remittances.

In formal remittances alone, migrants from developing countries sent back at least 88 billion dollars in 2002, he said. ”That’s 54 percent more than the 57 billion dollars those same countries received in ODA,” added Annan.

The number of migrants worldwide is estimated at over 175 million, up from about 75 million in 1960.

With 56 million, Europe has the largest number of migrants, followed by Asia (50 million), North America (41 million), Africa (16 million), Latin America and the Caribbean (six million) and Oceania (close to six million), according to U.N. figures.

Fernando Jimenez-Ontiveros, chief of the programming and priorities unit at the Multilateral Investment Fund/IDB, told the U.N. panel discussion that official remittances were even higher than available figures because of ”faulty record keeping.”

The real figure is about 150 billion dollars annually, which ”greatly helped to reinforce purchasing power among some 150-200 million people worldwide.”

”However,” he warned, ”remittances should not be viewed as a form of ODA, as some governments tended to see them. They are an important source of development finance, but cannot replace aid.”

Ratha said that although the cost of sending money home has been falling it remains too high. The average remittance transaction fee is about 13 percent of the money sent.

”The poor end up paying the bill,” he said. ”It must be made easier for people to open bank accounts, including by lowering bank costs. Many banks do not want to open small accounts because they yield few profits,” added Ratha.

Therefore, he said, smaller banks and micro-finance institutions must be encouraged to get involved in transferring remittances.

”The growing significance of expatriate remittances is one of the most exciting economic trends of recent years,” says James P Clark, chairman of the London-based World Technology Network.

For years, development professionals have been trying to figure out how to get money to low-income people in the developing world in a sustainable way.

”In a pre-globalisation economy, this sort of transfer had to be intermediated and aided quite often by large, bureaucratic institutions, with a much greater loss of efficiency in the transactions than 13 percent,” said Clark, who participated in a recent U.N. seminar, ‘The Role of the Private Sector in South-South Cooperation.’

With remittances, he told IPS, ”we have tens of millions of people, if not more, creating value in the developed world through their work, while injecting a collective amount of money that dwarfs the laudable achievements of those development strategies that get much more public attention.”

”A massive, individually-generated and driven transfer of wealth and investment from the developed world to the developing world is happening right before our very eyes,” added Clark.

”Anything we can do to encourage its growth, the better. However, we must remember that its strength is that it is individually driven, even if the collective effect is enormous and involves many. We, therefore, cannot and should not inter-mediate like has been seen to be necessary in other forms of development finance in the past”.

He also noted that finance companies, both large and traditional and smaller and more entrepreneurial, have flooded into the remittance industry to facilitate the flow of wealth from one part of the world to another.

”We cannot and should not interfere in the nascent industry itself, but rather should focus on promoting the benefits of remittance transfers to the media and the larger society, so that the story can be better appreciated,” Clark said.

”And, as a by-product, we will be encouraging more entrepreneurs and more competition within the remittance transfer industry, and drive up service levels while driving down costs,” he added.