People & Money

BIG READ: Immigration & History: Where Remittances Come From

By Kanyinsola Olorunnisola

Remittances – the money migrant workers send to their home countries – have been described as “the hidden engine of globalization”. It provides low and middle income countries (excluding China) with their largest means of external financing i.e. the foreign currency they need to pay for all imports, from medication to raw materials for industry. Remittances, which rose to $529 billion in 2018, is three times the total of all international development aid and has also surpassed foreign direct investment in low and middle income countries by international business. Though not available for governments to invest in building roads and hospitals, remittances, besides its role in enhancing external financing, enable the households who receive them to spend on improved education and healthcare, thus improving their country’s human capital. Half of private capital inflows in Africa in 2016 are due to remittances. Nigeria in 2018 received $23 billion dollars from citizens working abroad, roughly equal to the total 2019 expenditure of the Federal Government. Developing countries are taking another big economic hit from the coronavirus pandemic which has depressed domestic economic activities and sliced away export commodity prices; remittances will decline as migrants lose jobs in the major economies from which they are sent.

According to Dilip Ratha, the Lead Economist, Migration and Remittances in World Bank, global remittance is expected to fall by 20% this year, the largest dip since remittances have been tracked.  The 2008 global financial crisis caused only a 5% decline. Remittances to low and middle-income countries will decline in 2020 from the $554 billion inflow last year to $445 billion. This will affect every single region of the world. Sub-Saharan Africa will see a decline of 23.1%. Remittances to other regions will decline as follows: South Asia [22.1%], Middle East and North Africa 19.6%, Latin America and the Caribbean [19.3%], East Asia and the Pacific [13%], and Europe and Central Asia [27%].

The differences in the rates of decline is partly owed to patterns of migration, geography and political history. Money sent from the European Union countries to Africa (former colonies) and Europe and Central Asia (mainly former Eastern bloc countries that are now EU countries) will have a lower value as the Euro has weakened against the dollar. Meanwhile, dollars sent to oil producing countries like Nigeria will buy more locally because the collapse of oil prices has weakened the currencies of oil exporting countries. Let us take a look at some important sources of remittances.

Also Read: BIG READ: Modiscronies: Chumocracy in India and Nigeria Compared

MAJOR SOURCES OF REMITTANCES

United States

The United States of America has consistently topped the list of remittance generators since 1983. In 2017, an outflow of $148 billion was recorded in form of remittance outflows. America, the world’s richest country, with a 2019 GDP of $21.2 trillion, attracts a lot of immigrants from much poorer neighbouring countries and from farther afield. About 44.7 million immigrants—13.7% of the population—live in America. (Until 2018, America was also the number-one destination for asylum seekers). Most immigrants work as hair stylists, craftsmen, machine operators, house cleaners, agricultural workers, tailors and taxi drivers. Twenty five percent of immigrants in America are from Mexico. Mexicans are followed by Indians [6%], the Chinese and the Filipinos [each 5%]. The major destination of remittances sent from America in 2019 were Mexico [$30 billion], China [$16 billion], India [$12 billion], Philippines [$11 billion]. Nigeria came in sixth at just over $6 billion.

Not so much money will be sent this year. In the past six weeks, 30 million workers in America have lost their jobs and first quarter GDP has fallen by 4.8%, the biggest such contraction since 2008. It stands to reason that a considerable percentage of these workers are immigrants whose ability to transfer some of their earnings to their families in their countries of origin has been constrained.

United Arab Emirates

Only 20% of the population of the United Arab Emirates ( made up of the independent city states-Abu Dhabi, Dubai, Sharjah, Umn al-Qaiwain, Fujairah, Ajman and Ra’s al-Khaimah) are citizens of the country. Indians and Pakistanis make up 40% of the people living in the country. Because Emiratis mostly prefer to work for the government and the military, the private sector is run by foreigners who dominate white collar employment as well as unskilled labour. With a GDP of $425 billion in 2019, the UAE’s economy rests greatly on oil export. Member states like Dubai have diversified into tourism. Its wealth of resources has also translated into high remittances. A $45 billion cash flow from expatriates to their countries was recorded in 2019. Remittances flow to countries that provide the economy with workers such as India, Philippines, Pakistan, Bangladesh, Egypt and Jordan.

With the arrival of the COVID-19, jobs are starting to disappear. According to the Pakistani Foreign Office, at least 13,000 Pakistanis working in the Emirates have lost their jobs since the epidemic started.

Russia

Unlike countries like the USA and Britain, migration to Russia was mostly from the other 14 Republics which constituted the former Union of Soviet Socialist Republics (USSR). After the liberalization of entry into Russia after the break-up of the USSR in 1991, most migrants to Russia still come from the old sources- the former Republics of the USSR, now independent countries-Ukraine, Kazakhstan, Tajikistan, Uzbekistan, Azerbaijan, Armenia and Kyrgyzstan. Immigrant workers contribute roughly 8% to the country’s $1.658 trillion GDP.  Thirty four percent of immigrants work in wholesale and retail trade and 27% are employed in construction. Every year, immigrants from the former USSR Republics send home an average of $13 billion.

Russian economy is dependent on oil exports and with prices falling, the currency the rouble has depreciated  [1.3% against the dollar], so remittances will be worth a little less. More worrying is the fact that remittances from Russia are being projected to fall by 40%. This is bad news for a country like Kyrgyzstan where remittances make up to 29.6% of the GDP [77% of its remittances come from Russia].  Uzbekistan gets 100% of its remittances from Russia.

Switzerland

Switzerland is a big magnet for immigration. About 60% of the population have migrant backgrounds, perhaps the largest ratio in the Western world. Its largest immigrant groups consist of Italians, Germans, Yugoslavs, Albanians, Portuguese and Turks. Jobs in construction, domestic services and unskilled industry work are mostly filled by immigrants, with 70% of the workforce consisting of foreign nationals. Immigrants in Switzerland send $9 billion home in remittances, though half of the flow remains within Europe. It has the highest remittances per capita of any country in Europe: $308. The major recipients are Germany, Italy, France, Spain and Portugal.

But, like every other country, Switzerland’s economic fortunes will suffer a setback in 2020.  Experts have predicted a 6.7% dip in its $705 billion GDP and a 3.9% rise in unemployment. This will be the biggest dip in growth in forty-five years.

United Kingdom

The United Kingdom is the sixth-largest economy by nominal GDP. It is a highly diversified economy. It has a complex, continually-evolving economic system which relies on the industry of its labour force, a significant chunk of which is sourced from abroad. About 14% of the overall British population was born abroad but the statistics tell a different story when London is considered – 37% of the capital’s population is foreign-born. The British Prime Minister and former London Mayor, Boris Johnson’s great grandfather is a Turk. Food and drink manufacturing, warehousing, construction, hospitality, health, and wholesale and retail trade are the top sectors hiring immigrant workers. The British GDP is $2.9 trillion. The United Kingdom sent nearly $27 billion in remittances to foreign countries in 2017. Nigeria topped the list of the destination countries, with over $4 billion. It was trailed by India, France, Pakistan, Poland and Germany.

Britain recently surpassed $2.5 trillion in debt and the government’s net borrowing for 2020 is approaching 14 % of GDP, the highest single-year deficit since the Second World War. Even though the pound sterling is showing a steady rise against the dollar, the catastrophic impact of the lockdown will weigh on the economy in the long run.

Saudi Arabia

Saudi Arabia is one of the world’s top sources of remittances. The oil-rich country gets 87% revenue, 90% of export earnings and 42% of its GDP [$785 billion in 2019] from the petroleum sector. Forty percent of Saudi GDP is derived from the private sector, a core part of which is controlled by expatriates. Foreigners make up 37% of the population. They are mostly of Asiatic and African origins, from countries like India, Pakistan, Egypt and Bangladesh. Immigrants sent $33.5 billion back home in 2019. The usual top recipient countries are India, Egypt, Pakistan, Philippines, and Indonesia.

The pandemic is having an impact on the economy of the oil-rich kingdom. The riyal is falling. The central bank has depleted its net foreign assets at the fastest rate in twenty years.

COUNTRIES THAT WILL BE AFFECTED BY THE FALL IN REMITTANCES

Lesotho

Lesotho is a landlocked country. In 2017, remittances were worth 30% of the local economy i.e. total value of goods and services produced in the country. This number is owed to its extremely high emigration rate; half of the population work outside the county and sends money home. Most of the remittances come from neighboruing countries like South Africa, Mozambique and Botswana as well as Aruba and the United States.

Kyrgyzstan

Kyrgyzstan’s GDP is a mere $8.093 billion. Remittances is valued at up to a third of the former Soviet Republic’s GDP; 77% of the remittances is from Russia. With the Russian economy shrinking under impact of the decline in oil prices and the lockdown, significantly less money is expected to flow into Kyrgyzstan.

India

India is the world’s top receiver of remittances, benefiting from an inflow of $82.2 billion in 2019. Its major sources of remittances are the United Arab Emirates, United States, Saudi Arabia, Kuwait, Qatar and the United Kingdom. In 2018, remittances accounted for only 2.9% of its GDP. But it should not expect so much this year with the sender-countries dealing with massive economic problems of their own, especially with most of them relying on the troubled petroleum industry.

Nigeria

Nigeria is the top recipient of remittances in all of Sub-Saharan Africa and sixth in the world, receiving $25.4 billion in 2019. The previous year, Nigeria received $25 billion in remittances, which accounted for 6.1% of the country’s GDP in 2018. Most of it is generated through the 15 million diaspora Nigerians living in countries such as the United States, United Kingdom, Cameroon and Italy, with Ghana rounding up the top five.

Ghana

The West African country got up to $3.5 billion in 2018, making up to 5.4% of its GDP. Most of its remittances come from the United States [$610 million in 2017], Nigeria, the United Kingdom, Italy and Germany-sources plagued by widespread job loss, 6/8 weeks lockdowns and the prospects of longer periods of much reduced economic activity related to measures to curtail the spread of the coronavirus. Ghana’s Institute of Social, Statistics and Economic Research (ISSER) projects a worst-case scenario of a 5% decline in remittances inflow, much lower than the 23.1% the World Bank forecasts for Sub-Saharan Africa.

 

Ukraine

The former Soviet Republic is the largest recipient of remittances in Europe and Central Asia. In 2019, it received a record $16 billion. Ukraine has been dubbed “Europe’s Mexico because of a concern of the increasing outflow of labour and intellectual capacity of the country-the worrying trend is a constant subject of political discussion. Ukraine has a population of 42 million; 9 million travel abroad for seasonal work while 3.2 million work permanently abroad with no plans to return. The military clash with Russia and its economic consequences have fueled Ukrainian out migration to the Czech Republic, Hungary, Poland and Slovakia. An influential polish magazine published a survey of experts which ranked Ukrainians second, describing them as “the collective hero of the Polish economy” on a list of people who had made the greatest impact on the Polish economy in 2017, behind the Polish Prime Minister but ahead of the President. Ukrainians have taken up jobs in Poland, which is an EU member, left behind by Poles who have migrated to EU countries such as Germany and the United Kingdom.

The Next Ten Years

If the analysis of remittances had been done 30 or 40 years ago, Nigeria would have been a midweight source of remittances rather than one of the global heavyweight destinations. Then, Indians, Sri Lankans, Malians, Senegalese, Ghanaians and others travelled to Nigeria to work as teachers, tailors, managers etc. History or geography isn’t a nation’s destiny, economic policy almost always determines its fate. What’s common to all the major recipients of remittances is not their status as ex-colonies but poor political leadership and bad economic policy choices. Some of the major sources of remittances have also been colonized or were states formed only towards the middle of the 20th century or have been victims of Soviet domination. The economic ravages of the coronavirus pandemic is an opportunity for countries like Nigeria to retool domestic economic policies and aspire to export goods rather than people and import private capital in place of remittances. If Nigeria eschews ruinous subsidies and promotes free markers, in the next ten years it could become once again an importer of labour.

 

Kanyinsola is a 2018 Philosophy graduate of the University of Ibadan. He works as a copywriter and essayist in Lagos

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