Multi-sectoral impacts of increasing remittance flows deserve a thorough study
Friday, 21 March 2008
Md. Abdul Jabbar
THE Bangladesh economy has got a major turn for the positive, through strengthening of efforts for inward foreign remittance mobilisation. In this process, there is now a notable shifting of remittance from informal channel to the formal one. This year as much as more than US $ 7.00 billion is expected to be received by the country where it was about US $ 6.50 billion during the last year. Under the joint attempts, both the private and public sector financial institutions are making their efforts and looking for ways to open the easy path for entry of remittance funds to the country.
Such an increasing volume of remittances indicates the potential role of the policy-makers to adopt the required policy options. The remittance-attracting policy options should also include:
i) the study of impact of remittance funds on poverty alleviation, development indicators, social dynamics, and opportunities gained and lost in the recipient countries;
ii) addressing the concerns about increasing migration and its impact upon the families and societies based on scientific propositions;
iii) the "push" of population, unemployment and evaluating crisis pressures in less developing countries like us;
iv) strengthening or weakening of efforts for reducing income inequalities;
v) non-monetary contributions, including knowledge-sharing, investments in human capital, and travel;
vi) a research study for examining the dynamics of informal money transfer operations, particularly the use of the 'hawala' systems which combine low price and efficiency but may serve the needs of illegal operations or terrorists, in addition to the needs of families and communities;
vii) regulatory requirements and their impacts on small businesses; and
viii) migration, return and remittances: selected case studies etc.
New technologies allow remittance service-providers to reduce direct transaction costs and open new channels, thus, enhancing convenience for remitters and improving levels of transparency and accountability for regulators and policy-makers.
Remittance earnings have been of great importance to the national economies across the world. Some economists have analysed the Nepalese economy as a remittance-based one, which has played a prominent role to keep it in balance under that country's present difficult financial conditions.
The amount of remittances sent to Bangladesh through the informal channel has not yet been properly estimated but the amount thereof is considered to be as equal as to what is sent through the formal channel. The importance of remittance to the macro-economy is often underestimated. Now, readymade garments are usually cited as our biggest foreign exchange earner. But every foreign dollar earned in RMG sector needs expenditure abroad on equipment, raw materials etc.; we have to spend the dollars in order to earn dollars in the other sectors also. By contrast, remittances are "clean" foreign exchange, requiring no overseas expenditure at all.
The positive aspects of remittances are many. They go straight into the hands of the poor. This compares favourably with much government-to-government development aid, which normally ends up in the pockets of overseas contractors and highly-paid consultants and, thus, the remittance-flows benefit the whole country in a very direct way.
In addition to sending remittances, migrant workers are providing other important sources of revenue that stimulates the economies of their countries of origin. The first form of economic engagement has historically been remittances. However, such cash flows are not the only benefit accruing to the countries of origin. There are, at least, five other forms of economic support. First, in addition to cash, migrants bring consumer goods to their families and communities. Second, the nationals living abroad visit their home countries, often regularly, expanding or revitalising the tourist industry and related economic sectors such as airlines and other forms of transportation. Third, in the growth of 'nostalgic' industries, immigrants purchase products from their countries of origin. Fourth, immigrants may -- and sometimes do -- invest in businesses in their native lands including the industries. Finally, many migrants provide financial support to facilitate development and launch philanthropic initiatives through Home Town Associations (HTAs), which donate cash, goods, and in-kind services to communities in the countries of origin. In most of the countries under recent studies, economic connectivity between migrants and their native country has been found to be a recurrent process.
There may be a large number of villages now in Bangladesh that are otherwise remote and dusty where one would find many smart new houses built by money from the overseas. They often stand out in size and decoration. These are dream homes built by people who have worked long hours and endured many cold winters in Saudi Arabia, the UAE, Kuwait, Bahrain, Oman, Britain or North America, to construct and, thus, afford them. And remittances help boost growth and enhance ordinary people's standard of living in a way which most government expenditure does not.
This is because remittance money is spent on consumption, real estate, kitchen appliances, school fees, clothes, shoes etc. Such flows peak up at the end of the year when people are sending money home to meet the festival expenditures for the near and dear ones. And they remit in the run-up to the Eid-ul-Fitre and the Eid-ul-Azha, enabling families to buy new clothes and other goods on these festival days. Fifteen per cent of remittances are pension funds of the returning residents. And they spend the money on their day-to-day living expenses. This also helps the economy grow and support local retailers and other businesses.
Only in the recent days we have heard our policy-planners saying about remittance: "it is time to find ways for funnelling the funds to productive activities." But the type of consumption that remittances are used for, is more or less productive because it is fuelling growth. Furthermore, without remittances, tens of thousands of our children would not been able to go to schools. And nothing could be more productive than investing in education.
It may be desirable in the long run that the millions of dollars that come into our country via remittances should be translated into more formal investments. Formal investment in business entities or the financial services industry is an issue of consequence. For becoming successful in facilitation of investment of remittance flows in business activities, a holistic strategy towards our Diaspora overseas is contextually essential. We will not be successful, even in partial investment of those funds coming from the overseas, in formal economic activities, unless and until the members of our diaspora is convinced about our really caring about them.
Globalization and integration of regional economies have added impetus to the growing mobility of workers across the countries. In Asia, the movement of labour is becoming an important and enduring phenomenon, associated with economic growth and development, since it helps to overcome skill imbalances in labour markets and provide broad cultural and economic benefits for both sending and receiving countries. Migrants' remittances, for example, are now a valuable and stable source of foreign exchange to many countries of their origin. At the global level, the importance of migration to development is now reflected in the fact that it has become the part of agenda of multilateral institutions. The trade negotiations within the framework of General Agreement on Trade and Services (GATS) are related here.
The developing countries are now trying to understand better the role of migration in the development process. On their part, industrial countries are examining the ways in which their trade, aid, investment, and development assistance policies affect, and are affected by, international migration, especially from the developing ones. Here the studies, as suggested earlier, that are needed for the counties like ours, should cover the whole spectrum of inter-related issues form our perspective, in order to reap the best dividends out of the present-day situation. Otherwise, we will be left much behind in to-day's competitive global economic race.
The writer is Senior Vice President, Islami Bank Bangladesh Ltd
THE Bangladesh economy has got a major turn for the positive, through strengthening of efforts for inward foreign remittance mobilisation. In this process, there is now a notable shifting of remittance from informal channel to the formal one. This year as much as more than US $ 7.00 billion is expected to be received by the country where it was about US $ 6.50 billion during the last year. Under the joint attempts, both the private and public sector financial institutions are making their efforts and looking for ways to open the easy path for entry of remittance funds to the country.
Such an increasing volume of remittances indicates the potential role of the policy-makers to adopt the required policy options. The remittance-attracting policy options should also include:
i) the study of impact of remittance funds on poverty alleviation, development indicators, social dynamics, and opportunities gained and lost in the recipient countries;
ii) addressing the concerns about increasing migration and its impact upon the families and societies based on scientific propositions;
iii) the "push" of population, unemployment and evaluating crisis pressures in less developing countries like us;
iv) strengthening or weakening of efforts for reducing income inequalities;
v) non-monetary contributions, including knowledge-sharing, investments in human capital, and travel;
vi) a research study for examining the dynamics of informal money transfer operations, particularly the use of the 'hawala' systems which combine low price and efficiency but may serve the needs of illegal operations or terrorists, in addition to the needs of families and communities;
vii) regulatory requirements and their impacts on small businesses; and
viii) migration, return and remittances: selected case studies etc.
New technologies allow remittance service-providers to reduce direct transaction costs and open new channels, thus, enhancing convenience for remitters and improving levels of transparency and accountability for regulators and policy-makers.
Remittance earnings have been of great importance to the national economies across the world. Some economists have analysed the Nepalese economy as a remittance-based one, which has played a prominent role to keep it in balance under that country's present difficult financial conditions.
The amount of remittances sent to Bangladesh through the informal channel has not yet been properly estimated but the amount thereof is considered to be as equal as to what is sent through the formal channel. The importance of remittance to the macro-economy is often underestimated. Now, readymade garments are usually cited as our biggest foreign exchange earner. But every foreign dollar earned in RMG sector needs expenditure abroad on equipment, raw materials etc.; we have to spend the dollars in order to earn dollars in the other sectors also. By contrast, remittances are "clean" foreign exchange, requiring no overseas expenditure at all.
The positive aspects of remittances are many. They go straight into the hands of the poor. This compares favourably with much government-to-government development aid, which normally ends up in the pockets of overseas contractors and highly-paid consultants and, thus, the remittance-flows benefit the whole country in a very direct way.
In addition to sending remittances, migrant workers are providing other important sources of revenue that stimulates the economies of their countries of origin. The first form of economic engagement has historically been remittances. However, such cash flows are not the only benefit accruing to the countries of origin. There are, at least, five other forms of economic support. First, in addition to cash, migrants bring consumer goods to their families and communities. Second, the nationals living abroad visit their home countries, often regularly, expanding or revitalising the tourist industry and related economic sectors such as airlines and other forms of transportation. Third, in the growth of 'nostalgic' industries, immigrants purchase products from their countries of origin. Fourth, immigrants may -- and sometimes do -- invest in businesses in their native lands including the industries. Finally, many migrants provide financial support to facilitate development and launch philanthropic initiatives through Home Town Associations (HTAs), which donate cash, goods, and in-kind services to communities in the countries of origin. In most of the countries under recent studies, economic connectivity between migrants and their native country has been found to be a recurrent process.
There may be a large number of villages now in Bangladesh that are otherwise remote and dusty where one would find many smart new houses built by money from the overseas. They often stand out in size and decoration. These are dream homes built by people who have worked long hours and endured many cold winters in Saudi Arabia, the UAE, Kuwait, Bahrain, Oman, Britain or North America, to construct and, thus, afford them. And remittances help boost growth and enhance ordinary people's standard of living in a way which most government expenditure does not.
This is because remittance money is spent on consumption, real estate, kitchen appliances, school fees, clothes, shoes etc. Such flows peak up at the end of the year when people are sending money home to meet the festival expenditures for the near and dear ones. And they remit in the run-up to the Eid-ul-Fitre and the Eid-ul-Azha, enabling families to buy new clothes and other goods on these festival days. Fifteen per cent of remittances are pension funds of the returning residents. And they spend the money on their day-to-day living expenses. This also helps the economy grow and support local retailers and other businesses.
Only in the recent days we have heard our policy-planners saying about remittance: "it is time to find ways for funnelling the funds to productive activities." But the type of consumption that remittances are used for, is more or less productive because it is fuelling growth. Furthermore, without remittances, tens of thousands of our children would not been able to go to schools. And nothing could be more productive than investing in education.
It may be desirable in the long run that the millions of dollars that come into our country via remittances should be translated into more formal investments. Formal investment in business entities or the financial services industry is an issue of consequence. For becoming successful in facilitation of investment of remittance flows in business activities, a holistic strategy towards our Diaspora overseas is contextually essential. We will not be successful, even in partial investment of those funds coming from the overseas, in formal economic activities, unless and until the members of our diaspora is convinced about our really caring about them.
Globalization and integration of regional economies have added impetus to the growing mobility of workers across the countries. In Asia, the movement of labour is becoming an important and enduring phenomenon, associated with economic growth and development, since it helps to overcome skill imbalances in labour markets and provide broad cultural and economic benefits for both sending and receiving countries. Migrants' remittances, for example, are now a valuable and stable source of foreign exchange to many countries of their origin. At the global level, the importance of migration to development is now reflected in the fact that it has become the part of agenda of multilateral institutions. The trade negotiations within the framework of General Agreement on Trade and Services (GATS) are related here.
The developing countries are now trying to understand better the role of migration in the development process. On their part, industrial countries are examining the ways in which their trade, aid, investment, and development assistance policies affect, and are affected by, international migration, especially from the developing ones. Here the studies, as suggested earlier, that are needed for the counties like ours, should cover the whole spectrum of inter-related issues form our perspective, in order to reap the best dividends out of the present-day situation. Otherwise, we will be left much behind in to-day's competitive global economic race.
The writer is Senior Vice President, Islami Bank Bangladesh Ltd