By TBY | Jamaica | Nov 23, 2017
ï»¿ï»¿Each year, remittances consistently make up a significant proportion of Jamaica's GDP.
Many Jamaicans ply their trade abroad, perhaps none more famous than sprinter Usain Bolt. REUTERS/Eric Gaillard TPX
The Bank of Jamaica estimates that remittances inflows increased to USD2.29 billion in 2016 from USD2.23 billion in 2015. Within 2016’s figure, USD1.67 billion was transferred from the US, while another USD500 million was sent from the other centers of Jamaican diaspora, namely Canada and the UK.
The amount of remittances averaged at USD1.78 billion from 2001 until 2015, roughly accounting for 15% of GDP, which also translates to USD850 per capita. In its survey of consumer confidence for 1Q2017, the Jamaica Chamber of Commerce (JCC) stated that 38% of all Jamaicans receive remittances.
With an average 6.2% cost for a USD200 transaction (a 15% reduction since 2001), transfers to the Caribbean are cheaper than in other regions except for South Asia, according to the IMF’s regional outlook.
But although the total amount of money sent to Jamaica saw a slight decline during the financial crisis, remittances are slowly increasing. This constant external financing helps countries adjust to macroeconomic shocks, smoothing private consumption and boosting financial stability.
Impacts on inflation and the real exchange rate tend to be minor, as the inflow of currency is fairly stable and includes no drastic increases. In a recent report, the Inter-American Development Bank (IDB) estimated that remittances helped 10 million families leave poverty in Latin America and the Caribbean, improving health outcomes and education levels among recipients.
Yet, the overall effect of remittances is more nuanced when taking into account the negative effect of the emigration of a large part of the labor force. Jamaica has experienced, along with a number of its neighbors, a significant brain drain in recent decades.
In the Caribbean region, this emigration is predominantly female and educated. According to the IMF, 50% of Jamaican-born women living in the US have at least a college education, which is double the ratio of women in Jamaica, while 65% of them work as healthcare practitioners.
Statistics for men echo similar migration patterns. 21% of Jamaican men in the Caribbean country have a college degree, compared to 37% of those who have migrated to the US. Though more and more Jamaicans are coming back to their homeland and sharing their international experience, the outflow of Jamaica’s most educated has negative effects on innovation and the economy.
Recent political developments in the US could impact the total volume of remittance inflows to Jamaica. The JCC survey of economic confidence from 1Q2017 also indicated that the total amount of remittances was down compared to the previous quarter. In comparison to three years ago when more young adults were recipients of remittances, the elderly represented the largest beneficiary group, which is likely the result of emigration patterns of young, educated Jamaicans moving abroad for better job opportunities.
It remains to be seen whether this dip is normal fluctuation or the beginning of a trend. Following 2016 campaign promises, a bill, titled Border Wall Funding Act of 2017 and sponsored by Republican Mike D. Rogers, was introduced in the House of Representatives on March 30, 2017. Aimed at amending the Electronic Fund Transfer Act, the bill would add a 2% fee on remittances to 42 countries in Latin America and in the Caribbean, including Jamaica. The fee could create net revenue of more than USD2 billion per year for the US, increasing the cost of remittances and potentially inducing senders to find informal channels to send funds.
The Jamaican government is also making efforts to get the diaspora to invest in the island’s many economic opportunities.
Investment is perhaps a more stable avenue for infusing capital into the economy amidst protectionist immigration policies, and it is also a more effective way of improving development. Investment has the potential to lead to more productive partnerships and knowledge transfer as opposed to remittances, whose broader effects on the economy take a longer time to materialize.