The Importance of the Remittances by the African Diaspora and its problems

The Importance of the Remittances by the African Diaspora and its problems

Sonia Plaza

Africa RegionThe World Bank23 October, 2007

-2

-1

0

1

2

3

4

5

6

7

80s 90s 2001-05 2006-15

East Asia

Europe

LAC

MENA

South Asia

Africa

Growth in Africa has lagged other regions

African economic outlook

Per capita GDP Growth

-4-3-2-101234567

1990 1995 2000 2005

Developing CountriesDeveloping excluding China and India

Sub-Saharan AfricaHigh-Income Countries

African per capita income is now increasing in tandem with other developing countries . . .

Annual Change in Real per capita GDP %

Forecast

2008

Source: World Bank

African economic outlook

African immigrants are highly skilled workers

Africa: % of Highly Skilled Expatriates

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

South

Afri

ca

Nigeria

Kenya

Ghana

Congo

Ethiop

ia

Zimba

bwe

Ugand

a

Tanza

nia

Mad

agas

car

Mau

ritius

Seneg

al

Camer

oon

Moz

ambiq

ue

Congo

DRC

Nu

mb

er

0

10

20

30

40

50

60

Per

cen

tag

e

Total Number of Expatriates

% of highly skilled

Migration as a driver of growth

…Remittances to Africa are growing, but are low by international standards

Workers' Remittances US$ per capita

0 10 20 30 40 50 60 70 80

World

Low & middle income

Upper middle income

Low Income

Latin America & Caribbean

South Asia

East Asia and Pacific

Middle East and North Africa

Europe and Central Asia

Sub-Saharan Africa

2003

2000

1990


International Policy Agenda: Remittances

Understanding the size and trends in remittance flows to developing countries

Evaluating the impact of remittance on the households

Designing policies to: Reduce the transaction costs Strengthen the formal financial infrastructure Leverage remittances to improve access to

financial services

Some Government Policies: Remittance countries

Tax exemptions Improved access to banking

services by recipients Incentives to attract investment by

diaspora Access to FX Support for the projects of migrant

associations

Government Policies:Remittance-Source Countries

Policies affecting access to banks ( i.e. Matricula Consular)

Access to FX Immigration regimes Cooperation with receiving countries

Federal Reserve Bank’s automated clearing house for Mexico

Possible Spain with some Latin Amerian financial institutions

Remittances in Africa

Flows are much higher than official data suggests

Weak reporting structures Weak financial infrastructure: high

informal flows

What is needed? Reliable and effective financial services Enabling environment for attracting

remittances with appropriate products

Why fees are higher in Africa?

Weak competitive environment in the remittance market

Lack of access to technology-supporting payment and settlement system

Burdensome regulatory and compliance requirements

Where does Africa stand?

Labor markets and knowledge embodied in skills and human capital have not been globalized ( some exceptions of to tail of scientists, engineers, managers, and other talents)

Global Knowledge market remains highly unequal : Major concentration of knowledge activities in

the North (technological efforts and patents) However, increased number of scientists and

engineers graduating in the South

Role of Diaspora

Overcome inadequate information about international trading opportunities

Migrants facilitate host and source country bilateral trade and investment

Is there a role for the Diaspora? Forms of Involvement

Licensing agreements between diaspora owned or managed firms

Direct investment in local firms as a joint venture

Knowledge spillovers (managerial positions)

Networks of scientists and professionals Virtual return, extended visits or

electronic communications Return to permanent employment

The diaspora is more willing to take risks in its own country but:

It will require: Conducive business environment Sound and transparent financial

sector Rapid and efficient court systems Safe working environment


South Africa skilled Diaspora

Main barriers to doing business according to the Diaspora Crime Cost of living Taxation Standard of public and commercial

services


Types of Direct Contributions

Type of Support Noncommercial

financial

Commercial financial

Examples Collective

remittance to community groups

Investment in IT in India


Some examples: Mexico - Hometown Communities

Organized groups collect remittances from their members to finance community investments in their native towns

Vehicle for diffusion of information about investments opportunities in Mexico

Remittances are accompanied by personal and managerial skills


Mexico: Two Programs

My community in Guanajuato 21 maquiladoras for garments established Migrants invested US$ 2.2 million over four

years Three for One in Zacatecas

Channels community remittances to small-scale infrastructure projects

400 projects funded For each $ 1 contributed by migrant, the

Federal Governement contributes $1, the state government $1, and the municipal government $1


Using the diaspora: Some lessons from high skilled migrants

Key players: expatriates who have become senior executives in firms

They will build awareness in their corporations of their native countries as outsourcing candidates


Lessons from successful diaspora networks

Networks bring together people with strong motivation

Member play both roles: Implementing projects in the home

country; and Serving as bridges and antennae for

the development of projects in the home country


Examples of Initiatives in Africa

Regional Initiative in Science and Education (RISE) – Carnegie-IAS Origin: Vice Chancellors at Leaders’ Forum in

2006 concurred that staff development was their greatest need

Objective: Prepare PhD-Level scientists and engineers in SSA through university research and training networks

Diaspora role: giving short courses, hosting RISE students at labs abroad, engaging in collaborative research

World Bank Initiatives

Program of engagement with the Africa Diaspora University of Ghana, Faculty of Social

Science Ethiopia, Scholl of Medicine,

Telemedicine Unit, Connectivity Develop joint curriculum Thesis supervision, Mayo Clinic

Africa Migration and Development Study

Some possible actions

Building institutional linkages between diaspora and homeland governments

AAU Diaspora Bonds

Building institutional links between diaspora and homeland governments (continued)

Building institutional links at the continental level (AU, Nepad)

Fostering institutional cooperation with homeland countries

Promoting institutional cooperation with sectors within a homeland such as health, education, etc

AAU

Issues of Accreditation ICT (bandwith) Sensitizing faculty that it will be

mutual collaboration (opportunities for joint research)

Institutional Affiliation Providing back home opportunities

Diaspora Bonds:

Bonds issued by a country to its own Diaspora

Examples: State of Israel bonds, bonds issued by India, also bonds issued by Lebanon and Sri Lanka

Potential for Africa?

Brain Drain or Brain Gain?

The dilemma of highly skilled migration

Using the diaspora: trade, investment and technology

The special case of education and health professionals

An Emerging Policy Agenda

Policies to increase the development impact of remittances Improving market structure and reducing costs Winning the beauty contest – making receiving

countries more attractive Influencing how remittances are used

Managing migration Policies in receiving countries Dealing with fiscal losses Migration of skilled professionals in education and

health Mitigating the brain drain

International efforts at collective action A world migration organization? Mode IV and the GATT

Selected inventory of policy measures to enhance the impact of remittances

Objective Measure

Capturing a share of remittances for development purposes

Taxation of emigrantsDuties or levies on remittances transfersVoluntary check-off for charitable purposes (on transfer forms)

Stimulating transfers through formal channels and/or stimulating capital availability

Remittance bondsForeign currency accountsPremium interest rate accountsPromoting/enabling transfers through microfinance institutions (MFIS)Promoting financial literacy/ banking the unbankedLegalizing money transfer or remittances through ICT based systemsLinking up credit union cooperatives or banks with leading commercial bank institutions from developed countries with extensive branch networks in the sender and in the receiving countriesIncreasing domestic banks presence in transferring remittances Pension plans

Stimulating investment of remittances

Outreach through MFI infrastructureOutreach through migrant’s service bureausTax breaks on imported capital goodsSME schemes (financial, infrastructure or innovative)Training programs

Outreach to migrant collectives/ Hometown associations (HTAs)

Matched fundingPublic-private venturesCompetitive bidding for development projects

Influencing consumption patterns

Promoting consumption of local goods and services.Enabling migrants to spend on their relatives’ behalf

Boosting Development ImpactBoosting Development Impact

Thank you

The Importance of the Remittances by the African Diaspora and its problems

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