The Importance of Remittances

Funds sent back home by migrant workers have increased dramatically in recent years and in some countries have become the largest source of foreign exchange earnings words.

by World Business
Last Updated: 23 Jul 2013

Remittance flows - funds sent back home by migrant workers and immigrant communities living abroad - have grown strongly over the past decade, hitting $160 billion in 2004 and now estimated at well over $200 billion a year. The bulk of these remittances are sent from developed to developing countries. This transfer of funds is now far greater than the value and volume of international aid, and in many regions also exceeds foreign direct investment (FDI) and foreign exchange earned by exports, tourism and loans.

This flow of money - derived from wages and salaries and sent to relatives and local communities - represents a huge resource for development and has excited the development agencies, which for years have been seeking to finance and promote economic growth through the transfer of funds to poorer countries. It also interests banks and finance houses, which recognise the profits to be made out of the efficient transfer of funds across international boundaries. But, in particular since 9/11, it is feared that global remittance transfers may also be associated with money laundering on a vast scale and used to fund undesirable political movements and activities.

2. MIGRANTS ON THE MOVE

The movement of migrants from poor to rich countries has accelerated over the last decade or so. There are now about 200 million migrants around the world, with estimates suggesting that international migration has doubled in the past two decades, while remittance flows in the other direction have also doubled. The flow of human labour across international frontiers - for example, from West Africa to Western Europe - has emerged as a hugely significant phenomenon, carrying with it new global problems of trafficking, prostitution and terrorism.

The largest recipients of foreign migrants are the major developed countries and regions: North America (the US), Western Europe (notably the UK, Germany and France), the Gulf (Saudi Arabia, Kuwait and Qatar) and Japan. The largest senders of migrant workers are India and China, but others include Mexico, the Philippines, Turkey, Egypt and Morocco.

3. SENDING MONEY HOME

In some countries, remittances have become the largest source of foreign exchange earnings. An Inter-American Development Bank report suggests that migrant workers provide a lifeline to many Latin American countries: $38 billion is sent back home annually - more than total FDI in the region and greater than foreign aid. Remittances account for up to 25% of Jordan's GNP, and more than 10% in El Salvador, the Dominican Republic and Nepal.

But it is hard to be certain of remittance values and volumes because a significant proportion are not sent through formal banking channels but via a variety of informal mechanisms, including those known by local names such as hawala (used by Pakistanis in particular), hundi and fei shuei. In the past, informal channels have been quicker, often more reliable and more accessible to migrant workers unfamiliar with banking procedures.

But banks and finance houses are becoming interested in the profits to be made from these transfers, and are negotiating with local operators to increase market penetration. Informal mechanisms have also been squeezed since 9/11 as the West has sought to track funds used to finance terrorism.

4. THE WORK MIGRANTS DO

The stereotype of the migrant worker locked into poorly paid work in agriculture or the hotel and catering industry isn't supported by available evidence. Significant numbers do work in the service sector, but in a variety of jobs and at various wage levels. Many are in industry and manufacturing, and there are also migrants in professional and technical employment.

By David Seddon, professor of sociology and politics at theUniversity of East Anglia

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