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Leveraging the migrant dollar to smooth economic cycles

By Angela Heng (chinadaily.com.cn)
Updated: 2009-04-17 16:27

Angela Heng

Among the most vulnerable in the current recession are the poor in developing countries. As people in the developed world worry, quite rightly, about job security, how to get a loan for a new car or house and paying the bills every month, millions of people in poorer countries risk sliding into extreme poverty, where concerns are as basic as getting enough food and having a simple shelter from the elements. UN Secretary-General Ban Ki-moon warned again recently that action is needed to protect people, jobs, shelter and livelihoods in developing countries and called for a redoubled commitment to meeting Millennium Development Goals.

This economic crisis has and will continue to highlight the vulnerability of hundreds of millions in poverty and the need for concerted action. Clearly, there are structural issues that need to be addressed with urgency. Clearly, help from those better off is welcome and needed. What is also true, however, is that alleviating poverty is an individual responsibility and no more so than for the people to which it matters the most: the poor in developing countries themselves.

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There is no clearer illustration of this self-empowerment than the globalization of labor. In 2005, some 200 million people were living and working outside their home countries, according to the World Bank. That's about one in every 30 people on the planet. Most of these are people who have taken action to realize better lives for their families. In 2008, documented money remittances around the world were estimated to reach $283 billion, a large part of it funds sent by overseas workers to their families back home. Money remittances to developing countries now exceed both official development assistance and foreign direct investment. World Bank suggested that the second largest recipient of migrant remittances in 2007 was China, receiving $25.7 billion in remittances. The true size of remittances, including unrecorded flows through formal and informal channels, is believed to be even larger.

One would assume that the billions being sent home are lifting communities out of poverty. Unfortunately, things are not that simple. According to a recent study conducted by the Economist Intelligence Unit and sponsored by Western Union, remittances from foreign workers are going mainly towards individual consumption – to pay for housing and food and education. While such spending does have a knock-on effect on the local economy, the study found that a lot more could be achieved if more migrant dollars went directly to raising the long-term productive power of communities.

If migrant dollars are to make a real impact on helping to alleviate poverty, then we must move beyond the economics of individuals and families and look at whole villages, towns and cities. One way to achieve this is for migrant workers to pool funds into collective remittances for the benefit of their home communities.

An example of how remittances can help drive long-term development is the “Four plus One” program begun in Zacatecas, Mexico. Under this program, for each dollar that migrants put in a fund, the federal, state and local governments in Mexico contribute three dollars more, with Western Union adding another dollar. So far, $5 million has gone to creating thousands of jobs in agriculture, tourism, IT and other industries in four Mexican states.

Another collective remittance success is in Pozorrubio, an agricultural community in the northern Philippines. With the help of local leaders, migrant workers and their families formed organized groups to pool remittance money for infrastructure projects such as sidewalk light posts, a park, a library and enhancements to schools and hospitals.

The practice, however, is not widespread and could make a real difference if it were.

According to the EIU study, the keys to promoting collective remittances are the ability of migrants and their families to form organized groups, the ability to identify appropriate projects, successful project coordination, the capacity to carry out projects, effective leadership and support from governments, migrant associations and NGOs where necessary.

With so many factors involved, collective remittances are not an easy solution, and much work is needed to bring people together, to align interests and to see the possibilities realized. That is why in the coming months Western Union is convening a conversation in Asia that will bring together the stakeholders who, working together, could make collective remittances successful.

At Western Union, most of our customers are migrant workers, hard-working people actively improving their lives, people who have made sacrifices and have gone to distant lands, sometimes because they have no other choice, but nevertheless with ambitions and dreams to fulfill. They do not simply ask for our generosity and good will. What they would rather have for their home communities is the tools to let them help themselves.

Historically, remittances are more dependable and resilient than other forms of capital flowing to developing countries. Remittances are expected to fall in 2008, but the decline will be smaller than that of private or official capital flows to the developing world.

With increasing hardship and tightening financial resources everywhere, there is no better time to try to leverage the huge power of migrant worker dollars and to make them work to support long-term economic growth in communities.

The author is regional vice-president, Asia-Pacific corporate affairs, The Western Union Company.