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Sanket Mohapatra's blog

Implications of “Nitaqat”, Saudi Arabia's Indigenization Program, Likely to be Modest for Migrants

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Saudi Arabia's recent indigenization effort titled "Nitaqat" came into effect on September 10. Saudi firms have been color coded to four categories - Red, Yellow and Green, and Blue/VIP.  Firms labeled "Red" will not be able to renew their foreign workers' visas and have until November 26 2011 to improve their status by hiring more Saudi natives.  "Yellow" firms have until February 23 2012 to improve their status and will not be allowed to extend their existing foreign employees' work visas beyond six years.  "Green” or “Excellent” firms with high Saudization rates will be allowed to offer jobs to foreign workers that are employed by firms in the Red and Yellow categories and transfer their visas. And firms in the highest “VIP” category will enjoy the ability to hire workers from any part of the world using a web-based system with minimal clearance.

Equal pay for equal work for migrant workers?

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The recent negotiations between Philippines and Saudi Arabia about the minimum living wages for migrant workers have resulted in a stalemate. Philippines is demanding a minimum wage of $400 per month for its workers, while Saudi Arabia is willing to stipulate a minimum wage of $200 per month. Saudi Arabia stopped processing contracts of Filipino workers in March, recently the Philippines has said that it will not send Filipino maids to Saudi Arabia until the dispute is resolved. Saudi Arabia hosts 1.2 million Filipino migrants and accounts for nearly 300,000 overseas deployments annually, while the Philippines receives $1.5 billion annually in remittances from Saudi Arabia. Thus, this wage dispute could lead to loss of employment opportunities for Filipinos, involve cost of reintegrating returning workers, and a reduction in remittance flows -- all of which could adversely impact the Philippine economy. 

China demographic decline will reduce future growth - Wang Feng

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China's fertility rate is below replacement rate. But now economists say the phenomenon of fewer births is turning into a negative. The AP, Reuters and New York Times carry stories of Wang Feng, Director of the Brookings-Tsinghua Center for Public Policy. He says that China already had 14 percent fewer people in their 20s compared with a decade ago. In the next 20 years, he said, their numbers will dwindle an additional 17 percent, while the share of China’s population that is 65 and older is projected to double to 16 percent. Wang said the median age of the Chinese population is now 34 years old. He estimates that by 2050, half the population will be 50 or older, assuming the fertility rate is 1.6. By 2050, nearly one in four Chinese will be elderly, according to United Nations projections. The median age of Chinese will be higher than that of Americans by 2040.

Migration and Development Seminar: Management of International Migration in India

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The DEC-PREM Migration and Remittances Unit of the World Bank
Invites you to a

BBL
 "Management of International Migration in India"

Presenter: Professor Irudaya Rajan
Center for Development Studies, Thiruvananthapuram, India

Chair: Dilip Ratha
Lead Economist and Manager, DEC-PREM Migration and Remittances Unit

April 20, 2011 12:30 – 2:00pm
Room MC 7- 100

How can post offices improve access to remittances and financial services in rural Africa?

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 Photo:istockphoto.com

We have just released a Migration and Development brief prepared by our colleagues Jose Anson and Nils Clotteau of the Universal Postal Union (UPU) based in Berne, Switzerland. There are an estimated 660,000 post offices in the world, larger than all bank branches combined. In this brief, Jose and Nils explore the role that postal networks can play in providing money transfers (remittances) and basic financial services to low-income people living in developing countries, in particular those in countries in Sub-Saharan Africa.

International Women’s Day: How Do Female Migrants Contribute to their Home Countries’ Development?

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The New York Times recently featured an article on the contribution of female migrants to their families and to their countries of origin and destination. According to the Times, “Eleven years into the 21st century, women migrants have become a formidable force for development — and for the rise of women in developed countries whose careers depend on affordable child care.” Remittances sent by female migrants “…appear to be more frequent, regular and reliable even in times of crisis.”

Female migrants account for about half of an estimated 215 million international migrants in 2010 (UNPD). The share of women in skilled occupations has increased in OECD countries. However, there are very few rigorous studies that specifically consider the role of gender in migration. A few available studies suggest that female migrants typically send money for – and female recipients spend remittances on – human capital investments such as food, education and healthcare of family members (see evidence for Ghana).

Are mobile money transfer costs too high?

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Kenya’s Central Bank Governor Njuguna Ndung’u recently urged the country’s mobile money transfer (MMT) operators to reduce their transaction fees. According to the Governor, “There is no way one can send 50 Shilling at 35 Shillings”. This translates into a seemingly exorbitant 70 percent fee for a small transaction equivalent to less than $1. Safaricom, the telecom operator that offers M-Pesa service (a highly successful Kenyan venture with more than 13 million clients), and other Kenyan MMT operators, however, maintained that the services they provide represent value for money. So are mobile money transfer costs too high?

Before we answer this question, it’s worth pointing out that even if mobile money transfer costs are fixed, average costs expressed as a share of the amount sent can rise if the average size of transactions falls. That is what happened with M-Pesa. M-Pesa charges a fixed fee per transaction within pre-specified fee brackets (see tariff poster). As the use of M-Pesa spread, Kenyans started using it for smaller and smaller transactions. The average amount sent through M-Pesa declined from the equivalent of about $50 in March 2007 to less than $30 by March 2009. The fees charged by M-Pesa, including withdrawal charges, expressed as a share of the average amount, rose correspondingly until mid-2008 (see chart). Because the average transaction size fell to the lowest fixed fee bracket in mid-2008, there was a downward jump in the fee. Then average costs rose again up until March 2009.

Taxing remittances is not a good idea

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Photo: istockphoto.com
Remittances sent by migrants have become a massive financial resource flow for developing countries with over $300 billion received annually. While most governments have encouraged efforts to increase these hard-currency flows through formal channels, some are considering taxing remittances as an additional source of revenue.     

A few receiving countries already tax remittances, often through indirect means. For example, remittances sent from the US to Cuba can only be paid to recipients in Cuban Convertible pesos (CUC) or Chavitos with a tax of 20 percent for conversion of US$ to CUCs. The US government and a US senator called upon Cuba to repeal this tax when the US lifted restrictions on sending remittances to Cuba. Other countries that have a parallel market premium with an overvalued official exchange rate, e.g., Ethiopia, Pakistan, and Venezuela to name a few, also implicitly tax remittances when they require recipients to convert remittances to local currency at uncompetitive official exchange rates. Philippines used to impose a small Documentary Stamp Tax (DST) of 0.3 pesos for every 200 pesos, but this was scrapped in November (see article).

US signs historic deal with El Salvador and Honduras for remittance securitization

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The United States has recently signed separate Memorandums of Understanding (MoUs) with El Salvador and Honduras to assist them in securitizing their future remittance receipts to raise financing for infrastructure and development projects. Under the Building Remittance Investment for Development, Growth, and Entrepreneurship (BRIDGE) initiative, banks in these countries will leverage their future remittance receipts to raise lower-cost and longer-term financing in international capital markets to fund infrastructure, public works, and commercial development initiatives (see press release).

In a speech in New York City on September 22, Secretary of State Hillary Clinton explained how BRIDGE would work to raise critically needed development funding:

“…Now, if they [migrants] send these remittances through the formal financial system, they create huge funding flows that are orders of magnitude larger than any development assistance we can dream of. By harnessing the potential of remittances, BRIDGE will make it easier for communities in El Salvador and Honduras to get the financing they need to build roads and bridges, for example, to support entrepreneurs, to make loans, to bring more people into the financial system…..Through BRIDGE and its in-country partners, local banks will be able to leverage their remittance flows….With the leverage from remittances, the local banks will be able to get lower-cost, longer-term financing for investments in infrastructure projects and small businesses.”

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