As they say, what goes up must come down. And by extension, what goes out will often return.
Salud Bautista (R), president of PhilRem Service Corporation, a remittance and money changer company, answers questions from Senators, beside her lawyer, during a Senate hearing of money laundering involving USD81 million stolen from Bangladesh’s central bank, at the Philippine Senate in Manila April 19, 2016. REUTERS/Erik De Castro
When people depart their homeland to meet an economic imperative, their emotional bond to those they left behind often intensifies.
Their personal experiences and familial commitments travel with them too, leading many to funnel the money they earn abroad back home in the form of remittances.
On the move
As if numbers were necessary to confirm the sheer fluidity of movement in today’s world, approximately 258 million people live outside of their nation of origin; close to the population of Indonesia.
Remittances have become the hallmark of this fluidity, and by 2017 individuals living abroad had sent approximately USD466 billion back to the developing markets, up 8.5% YoY from USD429 billion. The number of dependents these people support though is a vertiginous 800,000, according to International Fund for Agricultural Development (IFAD) data.
And at the other end of the economic spectrum, flows to high-income economies also rose, by 7% YoY to USD613 billion last year.
World Bank data indicates that the US topped the list of remittance source countries in 2014 on roughly USD56 billion in outward flows, after which came the expat staple of Saudi Arabia (USD37 billion), and Russia (USD33 billion).
Last year, from among the recipient nations, India led on USD69 billion, followed by China on USD64 billion, the Philippines on USD33 billion, Mexico on USD31 billion, Nigeria on USD22 billion, and Egypt on USD20 billion. This year a sustained rise of around 4.6% in global remittances could bring the total to USD642 billion.
The World Bank also notes that migrant remittances total three times the volume of overall aid to developing economies.
What’s more, migrants are estimated to squirrel away over USD500 billion in annual savings. Indeed, such is their economic weight, and catalytic social effect, that June 16 is International Day of Family Remittances.
Dollars and sense
Financial benefit aside, migrant workers also generate so-called social remittances, comprising a transference of acquired skills values and knowhow of ultimate benefit to local communities and the broader home country.
A trickle-down effect on local agriculture, industry, and others areas of the economy, as it were. Social remittances also include financial literacy, and often represent the first step of the recipient into the formal financial universe.
Stable financing…
Unlike hot money invested in newsworthy EMs that departs as swiftly as it arrives, unfelt by local communities, remittances represent a regular and stable source of income. And moreover, a revenue stream that is felt more immediately than long-term social investment, the implementation of which is felt in local pockets much later.
…but at a cost
Among the obstacles to remittance flows are transaction charges. Approximately 3% of the transaction value is the Sustainable Development Goal target.
But while charges have dropped over the years, the decline is far from uniform. For example, while fees are currently below 3% in Eastern Europe and Central Asia, according to the World Economic Forum (WEF), the global average cost of sending home USD200 was 7.1% in 1Q2018. The average rises due to Sub-Saharan Africa, the most expensive destination for remittances, where the average cost of transmission is a crippling 9.4%.
FinTech comes home to roost
Solutions to the above are emerging, however. Just as with the broader financial system, cutting-edge technology is finding its way to the transmission of remittances. Today around 3,000 service providers are actively engaged in these transfers by IFAD numbers; business has shifted from traditional banks to more competitive Money Transfer Operators (MTOs). Hand in glove come online transfers, digital wallets, and mobile money apps.
While perhaps overlooked when we ponder the issues of globalization, at a closer look remittances are a true economic force; one that aside from feeding the recipient, can teach them how to fish.
