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1 March 2011

UNCTAD Expert Meeting on maximizing the development impact of remittances

Held in Geneva, the two-day meeting brought together experts from governments, academia, international organizations, regional organizations, financial institutions and associations, as well as NGOs.

Background

According to UNCTAD, the importance of remittances in developing countries is increasing. In 2009, remittances to developing and least developed countries (LDCs) reached US$316 billion, accounting for 1.9% of the gross domestic product (GDP) of these countries. In almost a third of the LDCs, remittances account for more than 5% of gross national income. For some countries, remittances are even more important than foreign direct investment (FDI) and have proved to be more resilient during the economic and financial crises.

International migration flows are increasing, representing 215 million people worldwide and are estimated to reach 405 million in 2050. More than half of all migrant workers from developing countries are working abroad in other developing countries. Workers’ remittances are the most immediate economic benefit of international migration and empirical evidence shows that remittances have generally helped poverty reduction and economic and social development.

Even though the effects of remittances vary among countries, in general, remittances have reduced the incidence and depth of poverty at the household level in many developing countries. A significant part of remittances transferred to developing countries are invested in household consumption, such as the construction of homes, health care, or education, which in turn can help generate employment, UNCTAD notes. The remaining part is spent in household savings, which can be invested in local and national public services infrastructures and productive activities. These funds can significantly leverage national financing for development.

Although official development assistance (ODA) and FDI create higher levels of domestic jobs, remittances, through the movement of people, can provide a development policy tool for countries in the South. The benefits of migration go beyond remittances as migrants and diasporas contribute to knowledge and skill transfer, entrepreneurship and productive capacity building.

The Expert Meeting sought to explore the linkages between migration, remittances and development, including: 1) the impact of remittances on poverty reduction, economic growth and development at both micro and macro economic levels; 2) policies and measures that can channel saved remittances and other diaspora funds to serve the developmental needs of home countries; 3) constraints to harnessing the opportunities brought by remittances in relation to costs of remittance transactions and migration flows and the means to address them; 4) mechanisms to maintain coherence and coordination at national, bilateral, regional and international levels and among all stakeholders to bring the remittances potential into full play; and 5) policy actions and practical solutions to be considered to support countries’ efforts to enhance the development impact of remittances.

A number of issues were raised by participants on how to facilitate international flows and how to enhance their effciency. One major challenge identified was transaction costs as many suggested that these costs remain too high. Although the average cost decreased in 2010, there is still a lack of safe, reliable and accessible transfer systems for remittances and many migrants therefore rely on informal transfer channels.

Participants also stressed that greater financial regulation in both origin and destination countries could provide a more enabling environment for facilitating remittances flows. Many suggested that migration is a “win-win development opportunity,” and in order to manage cross-border issues, greater policy and institutional coherence – as well as coordination at different levels – is needed.

Migration and remittances trends: opportunities and challenges

Migration trends

Due to globalization, migration flows have increased considerably over the past several years and South-South migration and intra-regional migration toward developing countries have become more common. More recently, the financial and economic crises have impacted migrant workers in terms of restrictive measures towards migrant inflows in order to preserve jobs for nationals.

In general, remittances are received by the poor and help reduce poverty by increasing income of the poor. For example, studies show in 77 developing countries a 10% rise in remittances leads to a reduction of 3.9% in the poverty headcount ratio and to 3% - 3.5% reduction in the poverty gap.

Africa

According to Abebe Shimeles, African Development Bank, even though migration in Africa is lower than other regions due to poverty, conflict and socio-economic conditions, it has been increasing over time and migrants have proved to be important to household welfare in Africa. Most movements are intra-regional in Sub-Saharan Africa. In North Africa the movement is mainly to countries outside the continent. Africa has the highest rate of skilled migrants who face limited employment prospects in their country of origin.

The policy issues concerning migration and development are about better policy coordination to manage migration and devise innovative ways to maximize the developmental impact of migrant resources mainly through:

- Reducing cost of remitting money;

- Diaspora bonds and securitization of remittances;

- Work with Diaspora associations to enhance knowledge and skill transfer.

Click here for Mr. Shimeles’ presentation on “Migration and development in Africa: stylized facts and policy issues.”

The development impact of remittance flows

Participants emphasized that remittances constitute an important source of external financing for developing countries and are directly received at the individual level – thus augmenting income and alleviating poverty. According to International Fund for Agricultural Development (IFAD), 30% - 40% of remittances go to rural areas. The way in which remittances are used can produce wide multiplier effects in national development, such as social inclusion and sustainable investment.

Consumption remittances play an important economic and social role, even if remittances should not replace development assistance, participants stressed.

Within the context of the recipient of the funds and, from a development policy context, remittances represent a share of a household’s total income. Depending on the region in the world and within a country, income dependence on remittances represents between 50% - 80% of all earnings. The highest dependence is found among populations with large seasonal labor migration.

Facilitating flow of remittances

Significant constraints exist in harnessing the opportunities brought by remittances that relate to costs of remittance transactions and distribution. These include affordability and accessibility for remittances senders to use safer and more secure formal transfer channels and new technologies; information asymmetries; restricted market competition; arbitrary exchange rate and taxation on remittances that all increase the risks or cost sending remittances. For example, in Mexico, most of remittances come from the United States, representing 3% of the GDP. In Mexico, there has been a decrease of remittance costs from 28.5% to 6.5%.

Informal transfers are more expensive than formal ones, participants pointed out, and there is a need to establish a framework and policies to make formal transfers more accessible and limit the amount of informal transfers.

Addressing barriers to remittance flows through facilitating temporary migration

Various measures are in place that impede migration flows and thus could become barriers to remittances flows, including numerical migrant quotas; burdensome visa requirement and related fees; lack of access to income protection and other forms of social security; as well as policy and institutional coherence in countries of origin and destination.

Participants noted that external shocks in the country of origin can lead to an increase of remittances. There is also evidence that receiving remittances correlates negatively with having formal insurance coverage, as for some, remittances are recorded as current income, and not as an asset. Remittances can therefore function as a disincentive to earn income and stimulate risk-taking behavior, some participants cautioned.

The links between remittances and social protection are various as remittances can also help prevent risks by boosting productivity, fortifying social cohesion and producing public goods.

Migration, remittances and human rights

Migration should not only be seen from an economic perspective as human rights have an important place in the debate, Deputy High Commissioner for Human Rights, Kyung-wha Kang, stressed, adding that human mobility “makes societies more dynamic and prosperous.”

Noting that migrants contribute both to the countries in which they live and work and to the countries that they leave behind, Ms. Kang stressed, “The United Nations Secretary-General recently recalled the fundamental role that migrants play in strengthening the global economy by contributing to economic growth and human development. The transfer of remittances between countries of destination and origin is an important means, through which migrants can make this contribution to development. Remittance flows are now estimated to be three times larger than official development aid transfers. In consequence policy and measures also have to be taken in support and for the protection of migrant workers. Migrants should not be pushed away just for remittances. Member States have important obligations in terms of fulfillment and providing, without discrimination, access to food, health… to be sure that migrants are flying away on their decision, willingness.”

For Ms. Kang’s full statement, click here.

Women and remittances

UNFPA Deputy Executive Director Purnima Mane focused her remarks on proportion and contribution of women migrants, the impact of their remittances, the effects of the financial crisis, and the need to protect the rights of women migrants and take other measures to maximize the development impact of the remittances they send.

Noting that at 49.2%, female migrants constitute half of the international migrant population, she stressed: “Indeed, women are not just passive players who accompany or join migrating husbands or other family members. Migrant women are in many cases the only contributor to family income. Many women increasingly migrate on their own in search of better opportunities for themselves and their families. And they contribute to improvements in the quality of life in both countries of origin and destination.

“Every year, migrant women send large sums of money in the form of remittances to feed families, clothe and educate children, support older persons, provide health care and generally improve living standards for families left behind.

“In host countries, many migrant women are employed in households of working families, taking care of their children, the elderly and the household. Others contribute technical and professional expertise as teachers, nurses, scientists, technicians and business owners.”

“Despite the growing number of women migrants and the importance of the remittances they send to families left in countries of origin, there has been little analysis of the relationship between gender and remittances. Remittances are typically not disaggregated by the sex of remitters and receivers. As a result, not much is known about gender differences in the sending patterns, the use and impact of remittances, or the contribution of migrant women to local development in countries of origin,” she stressed.

Ms. Mane noted that in spite of limited analysis, research suggests that the sex of the sender affects three factors: the volume, the frequency and the sustainability of resources over time.

Women tend to remit approximately the same amount as men but send a higher proportion of their income regularly and consistently, even though they generally earn less than men. As women send smaller sums more often, they end up spending more money on transfer fees; reducing transfer fees and making different transfer options accessible would benefit women migrants and maximize the positive impact of remittances for families and communities in general.

According to Ms. Mane, research also suggests that remittances sent by women would have an even greater impact on families and communities if women did not face wage, employment, credit and property discrimination, and if they were not excluded from decision-making within their families.

Concluding, Ms. Mane emphasized that cooperation and collaboration between countries of origin and of destination should ensure flexible and coherent policies that promote the orderly flow of migration and protect the rights of migrants. “Female migrants should be viewed not only as workers but also as human beings with rights. They should be protected from trafficking, discrimination and abuse,” she further stressed.

For Ms. Mane’s full statement, click here.

Click here for the overview of the meeting.

Click here for the presentations.

Click here for the UNCTAD report “Impact of Remittances on Poverty in Developing Countries.”

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