Worker Remittances and Poverty in the Arab World
The Arab world has one of the highest proportions of migrant to local workers in the world, with over 32 million migrant workers in the Arab states in 2015 alone. In addition, the region has one of the largest diasporas in the world. This means that many skilled workers are emigrating to wealthier countries and sending money home via remittances. But what do remittances in the Arab World mean for the region and its inhabitants?

Brain Drain vs. Gain

In Lebanon and Jordan, unskilled labor is provided by growing numbers of refugees and foreign workers, totaling over five million in 2015. However, as more foreign workers enter the country, growing numbers of high-skilled Lebanese and Jordanian nationals are emigrating. This often occurs when opportunities are limited, when unemployment is high and economic growth slows. The phenomenon is dubbed ‘brain drain’ as opposed to ‘brain gain’, whereby an increasing stock of human capital boosts economies. A drain occurs while poor countries lose their most high-skilled workers and wealthier countries in turn gain these educated professionals.

Remittances in the Arab World

These expatriates commonly work to improve their own living situations while also helping to support their friends and families. This is where remittances come into play. As defined by the Migration Data Portal, remittances are financial or in-kind transfers made by migrants to friends and relatives in their communities of origin. Remittances often exceed official development aid.  They are also frequently more effective in alleviating poverty. In 2014 alone, the Arab states remitted more than $109 billion, largely from the United States followed by Saudi Arabia and the United Arab Emirates.

There is no denying that remittances can be a strong driving force for the socioeconomic stability of many Arab countries. But not all the influences are positive. Some experts argue that remittances can actually hurt the development of recipient countries. Their arguments cite potential negative effects of labor mobility and over-reliance on remittances. They emphasize that this can create dependency which undermines recipients’ incentive to find work. All this means an overall slowing of economic growth and a perpetuation of current socioeconomic status.

The Force of the Diaspora

The link between remittances in the Arab world and poverty is clear. Brain drain perpetuates and high amounts of remittance inflow and outflow persist if living conditions remain unchanged. Policymakers are therefore focusing efforts on enticing emigrants to return to their countries of origin. By strengthening ties with migrant networks, and implementing strategies like entrepreneurial start-up incentives and talent plans, the initial negative effects of brain drain could be curbed.

Overall, though brain drain and remittances can seem to hurt development in the short-term, if policies can draw high-skilled workers back, contributions to long-term economic development can erase these negative aspects altogether. Young populations that have emigrated to more developed countries acquire education and valuable experience that is essential to promote entrepreneurship in their home countries. Moreover, their experiences in advanced democracies can bolster their contribution to improved governance in their countries of origin. The Arab world’s greatest untapped potential is its diaspora, and it could be the key to a more prosperous future, if only it can be harnessed.

Natalie Marie Abdou
Photo: Flickr

Credit Access in TajikistanTajikistan, located in Central Asia, has a population of over 8 million people. Tajikistan has borders to Afghanistan, Uzbekistan, Kyrgyzstan and China. Although Tajikistan’s financial sector has made significant progress since 2000, many new advancements such as credit access are still in need of improvement. In 2017, almost 30 percent of Tajiks were living below the poverty line. Finding a solution to increase credit access in Tajikistan has become an important task for the government of Tajikistan.

Tajikistan’s Reliance on Remittances

Due to Tajikistan’s limited employment opportunities, about 90 percent of Tajiks travel out of the country for work. They often travel to the Russian Federation in search of employment. Many migrant workers send remittances back to their friends and family in Tajikistan. More than 60 percent of Tajik households reported that half of their income comes from remittances with 30 percent of Tajik households reporting that 100 percent of their income comes from remittances.

A 2010 Labor Organization study reported on how Tajik households save their income and remittances. The study found that only 23 percent of people were able to save their remittances with only 9 percent able to save at a partial amount of 21 to 40 percent of the money. When the money can be saved, it is not often for long. In fact, only 11 percent of the people were able to save their remittances for more than six months.

Income savings did slightly better. At least 63 percent reported being able to save part of their income. For example, 51 percent saved about 20 percent of their income. However, only 3 percent could save between 41-60 percent of their income. Since remittances are the main source of income in many Tajik households, money is spent on immediate needs, which results in low percentages in income saving.

Credit Access in Tajikistan

According to a 2010 International Labor Organization study, 95 percent of Tajik households do not keep their savings in financial institutions. Due to Tajikistan’s remote and unique mountainous terrain, 95 percent of Tajik households are not aware of the savings products available to them or know where financial institutions are located. Credit access in Tajikistan isn’t seen as a necessity in many Tajik households because it is very common and traditional for Tajiks to keep their savings at home. There also seems to be “a general distrust” of financial institutions.

In April 2010, the World Bank Group, with the help of the Government of Switzerland, launched the IFC Azerbaijan-Central Asia Financial Markets Infrastructure Advisory Services Project. This three-phase project is aimed at improving the financial infrastructure of Tajikistan and expanding credit for people and small businesses. This would allow for the creation of more jobs.

The project also provided financial literacy training to more than 100,000 Tajiks, which allowed Tajiks to become knowledgable about where their savings go. As a result of the IFC Azerbaijan-Central Asia Financial Markets Infrastructure Advisory Services Project, Tajikistan’s financial sector was able to establish the first private Credit Information Bureau with the help of IFC and the National Bank of Tajikistan.

These crucial advancements have led Tajikistan’s financial sector in the right direction toward improving credit access in Tajikistan as well as addressing the needs of the people of Tajikistan. With impoved credit access comes financial security, an increase in small businesses and a better economic standing.

Jocelyn Aguilar
Photo: Flickr

remittances to Mexico
Remittances to Mexico in 2017 reached the highest level ever recorded. Remittances provide many Mexican families with necessary supplemental funding and are one of Mexico’s most important sources of income. The record-breaking number of remittance payments were driven by the depreciation of the peso and uncertainty surrounding the future of Mexican exports to the U.S.

Remittances: Important Source of Income for Mexico

Remittance payments are one of Mexico’s largest sources of foreign income, with manufactured exports, oil exports and foreign direct investment. Although manufactured exports remain Mexico’s top source of foreign income, remittances outpace oil. Mexico is the largest recipient of remittance payments sent from migrant workers in the U.S.

Mexico’s poorest states tend to receive the most in remittance payments. In 2017, Michoacán received the most remittances — $2.915 billion. Michoacán is the sixth poorest state in Mexico, with a poverty rate of 54.4 percent. Remittances to Jalisco totalled $2.797 billion and remittances to Guanajuato were $2.56 billion.

According to the Bank of México, 2017 remittances from Mexican workers living abroad totalled $28.77 billion — a 6.6 percent increase over the $26.99 billion sent back to Mexico in 2016. Remittance payments to Mexico mainly come from the U.S.

Record-High Remittances Spurred by Two Factors

The record-high number of remittances to Mexico in 2017 were due to two major forces — depreciation of the peso and President Trump’s proposed tax on remittances to Mexico.

The peso dropped dramatically in 2016 after the U.S. election of President Trump. The election created uncertainty surrounding Mexican exports to the U.S., also known as Mexico’s largest export market. In 2016, the U.S. consumed 81.03 percent of all Mexican exports.

Specifically, the election of President Trump created fear that Mexican exports to the U.S. would be stifled either by the United States’ withdrawal from the North American Free Trade Agreement (NAFTA), or by the imposition of tariffs on Mexican exports. Remittances to Mexico traditionally increase when the peso is weak, as foreign currency will buy more pesos.

The ‘Wall’ of Cash

Additionally, President Trump has proposed taxing or halting U.S. remittances to Mexico to fund a border wall. Trump has threatened to prevent wire transfers between Mexican workers in the U.S. and their families back home until the Mexican government agrees to a one-time, $5-10 billion payment to fund the border wall.

Taxing remittances has also been considered an alternate measure to fund the wall. Economists argue that uncertainty surrounding the future of remittances to Mexico encouraged Mexicans working in the U.S. to send more money home in 2017.

– Katherine Parks
Photo: Flickr

Remittances to El Salvador

The Trump administration has announced an end to temporary protected status (TPS) for the 200,000 El Salvadoran refugees residing in the U.S. Immigrants have until Sept. 9, 2019, to either obtain a green card or to exit the country. Critics of the policy argue that El Salvador is unable to support an influx of citizens and point to the importance of remittances to El Salvador for the families that depend on this source of income.

 

Why Refugees Need TPS

El Salvadoran immigrants were granted temporary protected status in 2001 following two devastating earthquakes. Once enrolled in the program, immigrants have access to social security cards and a pathway to legal employment.

TPS status was originally granted to El Salvadoran refugees for only 18 months. However, previous administrations have repeatedly extended the program due to other adverse conditions like poverty and violence, as these have worsened since the earthquakes. For a country not at war, El Salvador has the highest homicide rate in the world: 108 per 100,000 people.

 

Remittances to El Salvador

El Salvadoran workers send billions of dollars annually back home to their families. These money transfers are called remittances. El Salvador has one of the highest remittance rates in the world.

In 2016, approximately 1.2 million El Salvadoran immigrants lived in the United States. They sent $4.6 billion in remittances back to El Salvador, making up 17 percent of the country’s Gross Domestic Product (GDP). Remittances to El Salvador have a much larger impact on the country’s economy than foreign aid. The United States sent only $88 million in aid to El Salvador in 2016.

According to Manuel Orozco, a political scientist with Washington D.C. think-tank InterAmerican Dialogue, between 80 and 85 percent of El Salvadoran immigrants send money back home. Orozco estimates that the average immigrant sends $4,300 annually. More importantly, Orozco estimates that one in 20 El Salvadoran households depend on remittance for survival.

 

How Remittances Help Those in Poverty

Remittances to El Salvador often help the poorest families access education, clothing, medicine and financial support for elderly citizens. In 2013, about 33 percent of households receiving remittance were considered poor, while about 46 percent were considered vulnerable. This suggests that remittance payments play an important role in keeping vulnerable households above the poverty line.

Remittances made up about 50 percent of monthly household income for recipients. Remittances constituted an even larger percentage of monthly household income for rural households and female- and elderly-led households.

Additionally, households receiving remittance in 2013 were more likely to have access to running water, bathrooms and electricity than the average household in El Salvador. Rates of home ownership were higher in remittance households than in the average El Salvadoran household.

In 2013, 94 percent of households receiving remittances used part of the money on consumption spending. Remittances increase domestic spending by providing poor families with a greater disposable income. Eliminating this source of revenue has the potential to hurt El Salvadoran businesses and, consequently, the El Salvadoran economy.

According to economist Cesar Villalona, “It’s a cycle. If remittances went down it would plunge people into poverty and reduce spending, which would hurt companies, causing unemployment and hitting government finances.” President Trump’s repeal of temporary protected status for El Salvadoran refugees could have devastating effects on the nation of El Salvador as a whole.

– Katherine Parks

Photo: Flickr