An Alternative Take on Diaspora Remittances

Diaspora remittances along with FDI (Foreign Direct Investment) and ODA (Official Development Assistance) form the high trilogy of capital flows into Africa. Remittances carry more weight than the other two — they are wrapped in emotion and tend to be devoid of self-serving agendas. FDI on the other hand is susceptible to the unpredictable winds of business sentiment; and ODA’s ebb and flow is in synch with political tides that are increasingly harder to predict.

The diaspora is a big deal. Nigeria alone is said to remit $35 billion annually — in nominal terms, that would rank the Nigerian diaspora as the 16th largest economy in Africa between Ghana and Cote D’Ivoire. If we account for the amount that comes in informally in envelops, coffins and in convertible goods such as car parts and mobile phones, the number could easily be more than double that.

Supporters of remittances cite the fact that the cash channeled back home stabilizes household incomes — the basics such as shelter, food, school fees and healthcare cease to be matters of concern. Any surplus is channeled into consumption or perhaps a small side business. On the flip side, there are drawbacks because remittance income fans the flames of dependency which in turn stifles productivity. The incentive for a recipient to work declines if there is a constant source of non-labour income stemming from Uncle Paulo’s laudable efforts making lattes at some European cafe. If any effort is made on the local front, it might be merely to cover surplus expenses above those catered for by the cash that is slid across the Western Union counter.

Inflow traceability down to the last cent is important. With ODA and some types of FDI, a slice of the funds find their way out of the recipient country. ODA-giving countries often prioritize employment of their own citizens, and some services and goods must be procured from their home markets; FDI’s negotiating power manages to wring a whole host of incentives (generous tax holidays and 100% repatriation of profits for example) from the countries trying to woe investment. There is nothing wrong with either as capitalism and donor funding are accountable to their own principal stakeholders.

I’d like to argue that the same often happens to remittance flows albeit in a non-conscious manner. If labour in an economy is of low productivity, there are fewer competitive goods manufactured in-country which leads to higher imports and therefore trade deficits. As remittances rise and portions of the inflows are channeled towards conspicuous consumption of a basket of goods that is dominated by imports, a percentage of those funds are therefore channeled back overseas. If Uncle Paulo sends his niece $200 to buy a Samsung phone, on a net basis, the Korean economy benefits because the labour chain that went into manufacturing that phone in Seoul stretches further than the sole salesperson manning a small electronics shop in Jinja. If on the other hand, we had a competitive brand locally, that money would have a more relative impact. Moreover statisticians will place the young lady in the emerging middle class of African consumers — nothing wrong with this per se but the danger of inaccurate prophesies regarding her broader spending power is real.

Remittances seek no yield in the financial sense and have a timeframe that at the very least, is only at the mercy of the termination clause embedded in Uncle Paulo’s employment contract. On both the institutional and retail side of things, there have been attempts at harnessing the investment potential of remittances. The Ethiopian government tapped into their diaspora to finance infrastructure such as the Grand Renaissance Dam with mixed results — they had to refund $6.5m raised in the US as the Ethiopian Electric Power Corporation (EEPC) didn’t register the bond sale with the Securities and Exchange commission (SEC). In January 2017, Nigeria appointed advisors to assist in their $300m bond targeting their vast diaspora. Diaspora citizens tend to heed the rallying cry to mobilize finance in cases where there is some kind of national crisis on the cards as was the case with India in the early 90’s when their nuclear program was penalized with sanctions, and more recently, Greece during their recent economic turbulence. Yes, emotion is capable of assuming a macro-economic form when nationalistic drums are sounded.

To us the cliché, a ‘paradigm shift’ in our thinking is required. I think as opposed to praising the flows, WE MUST look at ways toward reducing them. Rising remittances means that we are bleeding our labour to enhance productivity (and therefore competitiveness) in other economies and concurrently reducing the same domestically. Our economies are not harnessing our all important human capital. We really shouldn’t be popping champagne when statistical increases in remittances are announced.

There is precedence to the required pivot. Ireland has few peers when it comes to the scale of her diaspora. On a net basis, more Irish people have left Ireland than have stayed. Today, close to 70 million people globally have some form of Irish heritage (the number of Irish-born citizens living abroad is just under 1m). For long, these workers sought opportunities overseas and channeled funds to friends and family back home. More recently, the recalibration of the Irish economy has resulted in a reverse scenario. In 2014, Irish workers abroad sent 750m Euros back home. On the other hand, foreign workers in Ireland sent 1.8bn Euros to their home countries — the Balance of Diaspora Remittances (BoDR) for Ireland is a hefty 1.05bn Euro surplus (Nigerians in Ireland top the list — 16,500 Nigerians remitted EUR366m in 2014– EUR 22k per head!). What this means is that the economy of Ireland is at a level where jobs have been created that cater not just for their young labour but also attract others from overseas.

Remittance flows are, of course, one of several barometers — the deliberate export of labour is in itself a fine but only when there is counterbalance domestically. Mexico would have been in much more trouble in the Trump era if they hadn’t concentrated on enhancing productivity at home. Though a rethink is required thanks to probable changes to NAFTA, they have a strong economic foundation to buttress on. On the other hand, the countries with the highest remittances as a percentage of GDP — Afghanistan, Kyrgyzstan, Somalia, Liberia and Lesotho cannot be described as economic powerhouses by any metric.

For a country like Uganda, it is a travesty that remittances outweigh receipts from tourism — a sector in which her endowments are incomparable. Don't get me wrong: our diaspora is important. They showcase our culture and yes, there is value in the support structures that their cash builds. However making sectors like tourism work will make our labour market as attractive as our rivers, mountains and wildlife — a great incentive I would think, for Uncle Paulo to come back home to impart his barista skills on disillusioned young folk who would otherwise be trying to find their way out the country for work.

It is time to wake up and smell the coffee!

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