The volume of remittances back home by migrant workers worldwide is bigger, in many cases, than all other official forms of money transfer. The figure for Africa alone was around $20bn in 2006. This income is crucial in the several ways, but, asks Moin Siddiqi is this income being put to the most effective use?
Africa's share of remittances: $20bn and counting
Recorded remittances sent home by migrants from developing nations exceeded $301bn in 2006, according to new research published by the UN's International Fund for Agricultural Development (IFAD). By comparison, the World Bank's estimates were $276bn, up from $193bn in 2005 and more than double the level in 2001. However, both 2006 UN and World Bank data reflected only transfers through official channels. Therefore, the true value of remittances, including unrecorded flows via formal and informal channels, should be substantially higher.
They have grown faster than foreign direct investment (FDI) and official development aid (ODA) in the past decade, doubling in several countries and rising by 10-15% per annum over 2001-05.
Their main role in some poorer regions, notably sub-Saharan Africa and South Asia (India, Pakistan, Bangladesh and Sri Lanka), is to stimulate consumption and investment, as well as contribute to poverty alleviation. As Lennart Bage, the president of IFAD, put it: "Remittances represent a lifeline to struggling economies."
Globalisation, spurred by economic liberalisation and rising cross-border migration (due to falling travel costs) has triggered a surge in remittance flows during the past two decades, with worldwide flows skyrocketing from a mere $18.4bn in 1980.
Also, the reduction in average transmission costs thanks to intense competition between banks and money transfer operators, such as Money Gram and Western Union, and the expansion of remittance networks have boosted migrants' disposable incomes and their incentives to remit.
Whilst the sustained depreciation of the US dollar has increased the value of remittances from non-dollar regions (notably Western Europe and Japan), the appreciation of the euro vis-a-vis the greenback could account for some 7% of the increase in remittance flows to developing nations between 2001 and 2005.
Recorded remittance receipts have risen in virtually every region, including sub-Saharan Africa (SSA), which received more than $20bn in 2006 based on the UN's figures--more than double the $9.3bn estimated by the World Bank.
Remittances to non-oil Middle East and North Africa totalled $34.7bn. However, the recorded flows to SSA are grossly under-estimated. Caroline Freund and Nikola Spatafora, in their 2005 study, Remittances: Transaction Costs, Determinants and Informal Flows, calculated that informal remittances to SSA represented between 45% and 65% of official published statistics, compared with only 5-10% in South America.
Some private estimates indicate Africa (including the Maghreb region and Egypt) may be receiving as much as $93bn worth of money transfers annually from developed OECD and Arab Gulf...