Remittances

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To be able to discuss the different ways in which disparities can be reduced with an emphasis on remittances.

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Remittances

  1. 1. Remittances: Opportunity or Challenge?
  2. 2. The Facts <ul><li>Laborers are flocking to countries in larger numbers than ever before. </li></ul><ul><ul><li>The Philippines, with a tenth of the country’s population of 85 million works overseas, it is the third-largest migrant-sending country in the world, after Mexico and India. </li></ul></ul><ul><ul><li>They send 3000+ workers overseas everyday- and the number is increasing. </li></ul></ul><ul><ul><li>The payments that they send home to their family and friends – called remittances – totaled $11.6 billion in 2005: 10 per cent of the country’s gross domestic product. </li></ul></ul>
  3. 3. The Facts <ul><li>There is an ever increasing dependence between developed countries and developing countries: </li></ul><ul><ul><li>The United States needs Latin Americans to supply its labor market </li></ul></ul><ul><ul><li>The U,.K. depends on Ireland, eastern Europe, the New Commonwealth, and Pakistan for labour </li></ul></ul><ul><ul><li>Germany depends on Greece and Turkey </li></ul></ul><ul><ul><li>These migrations improve business profitability and reduce the costs of production, </li></ul></ul><ul><ul><li>The host countries, in turn, depend on the flows of remittances that result from the migration of labor. </li></ul></ul>
  4. 4. The Facts <ul><li>Total Global Remittances from foreign workers to their home workers reached $318 billion in 2007 </li></ul><ul><ul><li>Up from $170 billion in 2002 </li></ul></ul><ul><ul><li>Most money goes to LEDCS </li></ul></ul><ul><ul><li>Accounts for more than double the value of Foreign Aid. </li></ul></ul><ul><li>The largest Recipient Region </li></ul><ul><ul><li>Latin America </li></ul></ul><ul><ul><li>Remittances account for more than 10% of GDP and exceed the dollar flows of the largest export product in almost every country in the region. </li></ul></ul><ul><ul><li>Percentages ranged from 2% in Mexico , to 18% in El Salvador , 21% in Honduras , and up to 30% in Haiti . </li></ul></ul><ul><li>The largest Recipient Countries </li></ul><ul><ul><li>China, India, and Mexico </li></ul></ul><ul><ul><li>China and Mexico account for more than 1/3 of Remittances to developing world. </li></ul></ul>
  5. 5. Top recipient countries
  6. 6. <ul><li>But are Remittances an effective combat of disparities? </li></ul>
  7. 7. Case Study: Sub Saharan Africa
  8. 11. ODI: Official DevelopmentAssitance FDI: Foreign Direct Investment
  9. 12. Challenges for Africa <ul><li>Promoting Remittances = Promoting Migration </li></ul><ul><ul><li>Removal of younger, educated population </li></ul></ul><ul><ul><li>Decline in local market/pulling power </li></ul></ul><ul><ul><li>Reduced Workforce </li></ul></ul><ul><ul><li>Reduced purchasing power </li></ul></ul><ul><ul><li>Closure of local services </li></ul></ul><ul><ul><li>Rural areas are cut off from international remittances </li></ul></ul><ul><ul><li>Lack of Data on remittances to rural areas </li></ul></ul><ul><li>Remittances are expensive </li></ul><ul><ul><li>Within Africa, costs can be as high as 25 per cent of the sum. </li></ul></ul><ul><li>Few Banks or Transfer Centers </li></ul><ul><ul><li>The number of payout locations across the entire African continent is the same as  Mexico, which has only a  tenth of Africa’s population. </li></ul></ul>
  10. 13. Challenges for (rural) Africa <ul><li>Obstacles (e.g. Distance) </li></ul><ul><ul><li>Between 30 and 40 per cent of all remittances to Africa are destined to rural areas where many recipients have to travel great distances to collect their cash. </li></ul></ul><ul><li>Migration within the continent </li></ul><ul><ul><li>Rural areas are cut off from international remittances </li></ul></ul><ul><li>Weak financial system </li></ul><ul><ul><li>Little access to formal banking </li></ul></ul><ul><ul><li>High cost and little saving/investment </li></ul></ul>
  11. 14. Benefits <ul><li>Improved Welfare and Livelihood of recipients </li></ul><ul><ul><li>The recipients commonly spend the funds on necessities such as health, education, food, and clothing. </li></ul></ul><ul><li>Increased local investment in businesses and infrastructure. </li></ul><ul><ul><li>a $10 million hospital in Touba, Senegal, a new international airport in Kerala, India, and a metal bridge in Jomulquillo, Mexico. </li></ul></ul>
  12. 15. Opportunities <ul><li>Strengthen the financial sector </li></ul><ul><ul><li>Bank rural areas </li></ul></ul><ul><ul><ul><li>by expanding the kinds of institutions able to conduct remittances services to include microfinance institutions and post offices, the number of payment points would more than double. </li></ul></ul></ul><ul><ul><li>Use new technology (e.g. SMS and Internet) </li></ul></ul><ul><ul><li>Use Informal Channels as an opportunity </li></ul></ul><ul><li>Develop migration/diaspora policies </li></ul><ul><ul><li>Africa in early phase of migration management </li></ul></ul><ul><ul><li>Economic polices, diaspora accounts, diaspora bonds, co-financed development </li></ul></ul><ul><ul><li>Curb brain drain </li></ul></ul>
  13. 16. Conclusions……. ?
  14. 17. Overall Benefits of Remittances <ul><li>Leads to Narrowing the Rural–Urban Income Gap and Reducing Regional Disparity </li></ul><ul><li>Reduces Poverty </li></ul><ul><li>Pays for Basic Education and Health Care </li></ul><ul><li>Promotes Consumption and Investment </li></ul>
  15. 18. Overall Benefits of Remittances <ul><li>Remittances help developing countries cope with economic crises, improve their credit ratings, and help raise external financing. </li></ul>
  16. 19. <ul><li>BUT…… </li></ul>
  17. 20. Remittances can cause problems too.. <ul><li>Large inflows into small economies can cause the domestic exchange rate to appreciate thereby making tradable items less profitable. </li></ul><ul><li>Individuals and Governments may develop a dependency on large flows of remittances. </li></ul><ul><li>Can create an increase in disparities within a society (Haves vs. Have nots) </li></ul><ul><li>Significant reductions in remittances can collapse economies: the &quot;ghost-town&quot; phenomenon. </li></ul>
  18. 21. However the Reality is….. <ul><li>Like Aid and Private Investment, Remittances are extremely susceptible to Global Financial Trends </li></ul>In 2009 there was a sharp decline (between 5% and 8%) in remittance flows to developing countries, resulting in increasing financial hardships
  19. 22. Questions ?

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