Global Policy Forum

How These People Are Doing More for the Third World

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By Faisal Islam

Observer
April 20, 2003


There is a new and unexpected force behind the global movement of money. Restaurant workers, taxi drivers and au pairs are increasingly stepping in where bankers and bureaucrats refuse to tread. World Bank figures show that last year, for the first time, more money flowed from relatively poor migrant workers in rich countries than the combined total of government aid, private bank lending and IMF/World Bank aid and assistance. The total value of these remittances to developing countries reached $80 billion, double the aid provided by rich nations. Sending money home dwarves the $16bn of net government and bank lending.

Migrant workers sending money home is not new. What is new is the scale and importance to developing countries.Today hundreds of millions of poorly paid people are propping up the finances of developing countries. 'In 1995, remittances amounted to only one-third of debt flows. Last year they completely dwarfed them,' said Philip Suttle, author of the World Bank's Global Development Finance report. This rescue act has come not a moment too soon. The past two years have seen a calamitous collapse in conventional flows to developing countries. In the 1990s, financial orthodoxy believed that private flows to developing countries would make aid redundant - but the private sector is running scared of investing in developing countries.

True, while equities are crashing worldwide, the emerging markets sector is the one area that has experienced a boom. And last February, Gazprom, the Russia gas company, raised $1.75bn, the largest bond from an emerging market corporate borrower ever. But most emerging investment is directed at three countries - Russia, India and China. Total foreign direct investment (FDI), still the single biggest category of financial flow, is falling rapidly. Net FDI slipped back from a 1999 peak of $179bn to $143bn last year as lenders drew in their claws after the dotcom crash and 11 September. And of this, an overwhelming $109bn goes to 10 large countries. Surprisingly, rather than receiving investment, developing countries are actually exporting capital. The rich elites of poor countries are racing to ship their money into safer western havens 'In aggregate, developing countries are actually net capital exporters to the high-income world. And frankly, that's probably not something that's consistent with meeting the millennium development goals [of halving world poverty by 2015],' said the World Bank's Suttle.

Not all these flows are bad. Some reflect so-called 'south-south' flows of growing businesses in developing countries, such as the Mexican cement company which has invested in Indonesia and even the US. But the scale of this trend is more than a cause for concern. In smaller countries such as Bangladesh, Colombia, Ecuador, Pakistan, and parts of India, remittances play a significant developmental role.

Suttle believes that $80bn is a 'considerable underestimate' of the actual flows. Expatriate workers in Saudi Arabia, until recently the number-one source of migrant worker remittances, use the hawala system of channelling funds back to their homeland, making it difficult to calculate precise totals. In the US, however, banks and services such as Western Union have cornered the market for money transfers from expatriate Mexicans and Central Americans, making for more accurate statistics.

India and Mexico are the largest recipients of remittances - $10bn each - followed by the Philippines with $6.4bn. India's earnings from this source are nearly double the $5.8bn it earns from the much-vaunted software industry. Morocco, Egypt and Turkey receive around $3bn each, while Lebanon, Bangladesh, Jordan, the Dominican Republic, El Salvador and Colombia get around $2bn.

The effect on some smaller countries is remarkable. More than 37 per cent of Tonga's GDP is remitted by its migrant workers; in Lesotho, it's 26 per cent. Between 10 and 20 per cent of the annual income of Yugoslavia, Jamaica, Albania and Nicaragua comes from expatriates. Restaurant owners have funded schools and taxi drivers paid for hospitals in rural India and Bangladesh. There is much evidence that the Bangalore boom in Indian technology was greatly aided by the expertise of expatriate IT workers shipped off to Silicon Valley in the 1970s who 'reinvested' back home. India has just started to offer dual citizenship for people of Indian heritage going back six generations, to cash in on this. The transfer of skills, contacts and energy may be as important as the finance itself. 'Non-resident Bangladeshis from the UK send home far more than the equivalent amount of UK aid through official and unofficial sources. They constitute almost a third of foreign exchange earn ings,' says Murad Qureishi, who leads the British Bangladeshi Professional Association campaign on the issue.

It is calling on Clare Short to investigate the feasibility of remittance-backed development bonds for infrastructure and venture capital investment. It's already happening. Remittances are a more stable type of private capital flow and also a much-needed source of foreign exchange. This stability is reflected in the securitisation of remittance flows by emerging market banks. For example, in August 2001, Banco do Brasil issued $300m of five-year bonds using future remittances of yen from Brazil's 1 million expatriates in Japan as collateral. Standard & Poor's rated the bond BBB+, several notches above even the sovereign foreign currency rating. Whether migrant working is a sustainable method of developing poorer countries is debatable. But for now, if people in such countries want schools, hospitals and libraries, the best they can do is wait for a letter from abroad.

The Bangladeshi curry house bosses

Curry house owners have channelled thousands of pounds into building schools in needy areas. Shahid Abul Kalam, who runs the Raj Boy restaurant on London's Commercial Road, funded the refurbishment and extension of a 900-pupil secondary school in his parent's home village of Gohorpur, in Bangladesh. He raised £16,000 and went back at the beginning of this year to see the works commence. 'Almost everyone in the British Bangladeshi community does this. Interestingly, it has moved on from sending money to families, to funding useful social projects,' says Murad Qureishi of the British Bangladeshi Professional Association.

The nanny from the Philippines

What may seem an unconventional marriage is in fact a relationship that provides vital aid for a community. Elli, 34, is from a rice-growing village in the Philippines. For years she had a pen-friend relationship with a London musician who earns money as a builder. They married after he flew out to meet her. In London, Elli is a live-in nanny earning around £300 per week, seeing her husband at weekends. The husband does not drink or smoke and they live cheaply. Some of their money is saved to buy a home, the rest spent on 'foreign aid'. 'My village suffers, they get very little from the government. Some of my family live in Canada. We all help.'

The waitress from Bogota

Martina, 29, is bending the rules. She comes from Bogota, Colombia, and has been in London for two years on a student visa. Her progress is monitored by the Home Office, but what they don't know is that Martina works illegally, getting up at 4.30am four days a week to serve breakfast in a hotel. She earns about £160 a week, pays no rent or bills, and sends more than £100 each month to her mother, who has just bought a small farm outside Bogota. Her mother borrowed from the bank and needs to pay the debt off quickly. Colombia is one of the most violent places in the world and Martina has no immediate plans to return.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.