Remittances as a Development Tool

Remittances as a Development Tool Mitchell Sipus December 15, 2008

Introduction Clearly remittances are a significant aspect of the migration dynamics within the Middle East and North Africa. Although economic policies among various governments within North Africa, such as Morocco, have integrated remittances from Europe within their own planning, it is certain that much of the role of remittances within development initiatives remains unexplored. Most importantly, as large quantities of remittances are through informal channels, or exist in non-monetary forms, new approaches to integrate these forms of remittances into the economic interest of the nation must be determined. Existing Methods Using Remittances for Development Remittances are a significant contribution to the socio-economic landscape through the direct impact of monetary transfers and the strengthening of relations between migrant families and individuals. Yet there are certainly opportunities for the mobilization of remittances by involving local society within the broader policy decision framework within source and destination countries. However such a task remains excessively challenging to implement as local governments thus require a great deal of support and enhancement to enable such broad sweeping process of communication to take place (Sorenson 2004). One methodology pursued, within Nations such as Morocco, is the establishment of Town Home Associations linking diasporas communities to particular sending areas with the purpose of carrying out mutually beneficial development projects (Newland and Patrick, 2004). In addition, micro-finance systems have been established to channel remittances toward the establishment of local business investments. Tying remittances to micro lending has prompted development by enhancing local markets and allowing financial intermediaries to utilize remittances as deposits and to channel them into widespread community business creation rather than migrant specific programming (Sorenson 2004). 1

Prospective Opportunities for Using Remittances As remittances transfer by means of a dense web between diasporic communities and their origin communities, I think it is important that attempts to capitalize on remittance flows for community development focus more upon the individually of the medium. As existing attempts to utilize upon remittance based, or remittance-oriented schemes for development discuss linkages between migrant communities and government, I find the approach toward development to be somewhat contradictory. Future attempts toward integrating remittances within develop should be consequently based on the individual rather than further government intervention. One method of enhancing the development potential of remittances is through the integration technology into the migrant communities. In this manner, development can occur through business development, improved public services to the poor, increased connectivity, and job creation. Within situations where there is a high demand for connectivity, but a lack of infrastructure, the integration of wireless communication systems could provide opportunities where computer use is not high. An example can be found within the distribution of ATM machines for banking services where banks have otherwise disappeared, providing international banking services to the poor, allowing a more streamlined distribution and procurement of remittance flows. Furthermore, increased distribution of mobile phones, such as within Grameen Bank’s project Grameen Phone, can increase connectivity allowing individuals to procure information regarding travel conditions, market prices, and potential buyers while circumventing a middleman (Spencer 2002). Increased communication can consequently allow individuals to access resources outside of the immediate location/society, thus tightening the bonds between migrant communities but on the micro-scale of an individual consumer basis. If any government initiatives should take place to enhance to development potential of remittances it should be to provide universal access to communication systems within its population. As a continuous key objective within government policy is to increase public education for children and youth, the reduction of the digital divide allows individuals the capability to better integrate education and knowledge production within migrant 2

communities (Sanyal 1999). Ideally this process must take place within the origin and the host country to create a fluid process wherein widespread knowledge production may transform into entrepreneurship and stimulated remittance flows. In general, improved telecommunications investment leads to growth, within economic returns higher than telecommunications returns. Furthermore, enhanced telecommunications allows better management efficiency, thus reducing costs and improving outputs, prompting important spillovers in the local community (Roller and Waverman, 2001). As improved telecommunications is a clear winner in terms of economic growth, it is reasonable to suspect that remittances would likewise increase in volume and consistency among migrant communities for the same reasons of increased connectivity, reduced costs, and greater spillover in the local community. Conclusion Remittances are a well-established source of capital for communities and families with migrant members within the Middle East and North Africa. Thus far, it appears that government policies attempting to enhance the development prospects of remittance flows have focused on the financial linkages within the transaction process or have focused upon the relationship between the community, the local government, and the state. However, as the essence of remittances is rooted within the tight composition of migrant and family ties, I argue that a better system of policy would look improve these bonds rather than redirect or profit from the capital flow. With a more efficient infrastructure for communication and capital transfer, such as through the improvement of communication technology, the remittance flow should increase in volume and consistency leading toward enhanced investment at the family level. The positive spillovers and externalities of this process will allow a form of development occurring from the ground up, rather than from the top down, as determined by the spending and investment patterns of the remittance receiving family. 3

Works Cited Newland, Kathleen and Erin Patrick. 2004. “Beyond Remittances: The Role of Diaspora in Poverty Reduction in their Countries of Origin. A Scoping Study by the Migration Policy Institute for the Department of International Development. Roller, Lars Hendrick and Leonard Waverman. 2001. “Telecommunications Infrastructure and Economic Development: A Simultaneous Approach,” The American Economic Review, Vol. 91, No. 4), pp. 909-923 Sanyal, Bish ed. 1999. “Information Technology and Urban Poverty: The Role of Public Policy.” High Technology and Low-Income Communities: Prospects for the Positive Use of Advanced Information Technology. MIT Press; Cambridge, Massachusetts. Sorenson, Ninna Nyberg. 2004. Migratn Transfers as a Development Tool: The Case of Morrocco. Danish Institute for International Studies, Working Paper 2004/17. Spencer, James. 2002 “Technology and Urban Poverty: Understanding the Barriers to Equality,” Projections MIT Student Journal of Planning, V 4

Remittances as a Development Tool

by Mitchell Sipus

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