Sanket Mohapatra's blog

For those of you like me who have not heard Shanta Devarajan on 'Mobilizing the African Diaspora', it is worth having the patience to sit through George Collinet's initial introduction. George starts with "Remittances again? You just had a podcast on remittances" (referring to Dilip's interview)!
 
Shanta talks about the impact of the crisis and also about the diaspora conference where he chaired a session on brain drain, and where Michael Clemens compared the remittances of Nigerian doctors to the cost of their education and found that the former exceeds the latter. 

Remittance flows to several Central Asian countries appear to be declining precipitously in the first half of this year, raising concerns that these flows are less resilient in the Europe and Central Asia region than in other developing regions. Remittance flows in US dollar terms to Kyrgyz Republic, Armenia, and Tajikistan declined by 15 percent, 33 percent and 34 percent respectively in the first half of 2009 compared to the same period last year.
 
Most of remittances to these three Central Asian countries come from Russia. From a survey of central banks that we conducted last year, Russia reportedly accounts for more than four-fifth of remittance inflows in Kyrgyz Republic and Armenia, and it was the top source country for remittances to Tajikistan. Driven by increasing emigration, primarily to Russia, remittance flows more than doubled in Kyrgyz Republic and Tajikistan US dollar terms between 2006 and 2008, while personal transfers through banks in Armenia increased by some 70 percent.  

Santa Catalina Arch, Antigua, Guatemala. Photo © Sanket Mohapatra/World Bank

I recently made a presentation on the impact of the financial crisis and our outlook for remittances in 2009-10 at a conference on improving central bank measurement and procedures on remittances organized by CEMLA and the Banco de Guatemala on September 8-10. My colleague Jacqueline Irving presented on a global survey of central banks.The sessions and interactions with the participants made me aware that central bankers are not just interested in measuring remittances accurately, but are thinking about a range of issues that affect both remittances and migration—ranging from how exchange rate movements can create incentives to send remittances for investment motives, to intra-regional and bilateral migration flows.
 

Photo © iStockphoto.com

Floods, earthquakes and hurricanes cause significant loss of life and destruction of property in many countries. The incidence of such disasters has increased in recent years. There is a growing consensus, however, that being better prepared against natural disasters can be equally or more effective than immediate aid and relief.

Several studies have shown that migrants send additional remittances after severe shocks. However, there is little evidence of whether and how they help households prepare for natural disasters (see paper for more details). In a recent paper for a forthcoming World Bank-UN assessment of the economics of disaster risk reduction, we analyze cross-country macroeconomic data as well as a number of household surveys to examine the "ex-post" response of remittances to natural disasters and their contribution to "ex-ante" preparedness. 

Bangladesh seems on track to launch a mobile money transfer (MMT) service which could potentially reduce costs to 1 percent of the transfer amount. The project will be implemented by Grameen Phone (a subsidiary of Grameen Bank which has pioneered mobile access to rural areas in Bangladesh) and is being supported by the World Bank, according to India's Economic Times. 

There are two new innovations compared to other developing countries with successful MMT implementation: (1) This service is targeted primarily for cross-border transfers (estimated at $9 billion annually), unlike other countries such as Kenya and Philippines where MMT has been focused on domestic transfers, and (2) It will use a network of ATM machines, where recipients can withdraw the money instead of having to go to a designated agent.

Entering the cross-border market will require developing settlement systems between Grameen Phone and banks and money transfer operators in the major remittance-sources (including in the Gulf) and extensive cooperation between the respective central banks and banking supervisors. The success of this venture will serve as a useful pilot for other countries that are considering such cross-border transfers.

The Miami Herald reported today that the Obama administration has lifted restrictions on family visits and sending of remittances by Cuban immigrants living in the United States (more details from a White House fact sheet).  Although there are no official figures on the amount of remittances sent by the 1 million Cuban immigrants in the U.S., according to a State Department background note on Cuba, these flows are estimated to be between $600 million and $1 billion annually.  The earlier U.S. policy, in effect since 2004, allowed very small amounts of remittances to immediate family members and trips back home every three years.   

Interestingly, the Cuban government still levies a tax of some 20 percent on inward remittances, and a White House spokesman and some senators have called on Cuba to reduce these onerous charges. These charges represent a significant loss of value for the recipients and a barrier to sending remittances through official channels.

China launched a two-way postal remittance service with Taiwan earlier this week. The Chinese daily Xinhua reports that this was the first formal money transfer from the mainland to Taiwan since 1949. 
 
While people in mainland China would be able to receive inward remittances in some 20,000 post offices, outward remittances would be available at over 2,000 post offices. The Taiwan post office has already offered such a service since December.
 
The cost to send money is 8 percent of the transfer amount for sending up to 200 Yuan from mainland China to Taiwan, and for the other way around, a fixed fee of 400 new Taiwan dollars (about $12) for a mail transfer.

Apart from being a historic moment for migrants on both sides of the Straits, this step shows how postal networks—which have perhaps the widest reach among the population, especially in rural areas—can play an important role in facilitating formal cross-border remittance flows.       

Zimbabwe's government recently announced a partial dollarization, declaring the U.S dollar and other foreign currencies as legal tender alongside the Zimbabwean dollar in its efforts to fight a crippling hyper-inflation (after announcing the launch of a 100 trillion Zimbabwean dollar note in January). This measure could make remittance transfers more visible.  These have been often sent through unofficial channels so far, the result of a large parallel market premium since the official exchange rate has lagged behind the parallel market rate.

The UN news agency IRIN reports that the long queues that used to form outside exchange bureaus (often for exchanging foreign currencies that were hand-carried and sent by other means by migrants into the country) have now shifted to the banks where formal money transfers are processed.

The ongoing economic and political crisis in Zimbabwe has caused GDP to collapse by more than 50 percent, inflation to reach 231 million percent in July 2008, and the share of people living in poverty to increase to more than 80 percent of the population. Remittances to Zimbabwe from its 3 million emigrants (a quarter of the population) who fled the crisis are estimated to be between $360 million to $1 billion annually—the actual figure is likely to be even higher. These flows may have helped to stave off a complete collapse of the country and even more misery for the poor.  
 
Some questions to consider:

The Reserve Bank of India (RBI) announced the launch of the “Indo-Nepal Remittance Scheme” for Nepali migrants in India.  This scheme allows migrants, including those who don’t have bank accounts, to send up to Rs. 50,000 (about $1000) in a single transaction. At the receiving end, the scheme allows recipients who don’t have a bank account to receive the transfer through a designated money transfer company.  This is indeed welcome news for those interested in reducing the burden on migrants and increasing the development impact of remittances in Nepal!  
 
There is no fee for a bank-to-bank transfer through any Indian commercial bank that participates in the National Electronic Fund Transfer (NEFT) to any bank in Nepal. For receivers who don’t have a bank account, there is a minimal charge of Rs 50 for a Rs 5000 transfer (1 percent of the transfer amount) and a flat fee of Rs. 75 for larger amounts upto Rs. 50,000. 
 
When using the service, Nepali migrants need to produce some form of identification (a passport, driver's license, telephone bill, etc.) in order to comply with Know Your Customer (KYC) requirements.  Given of the large number of undocumented Nepali migrants in India, policymakers should ensure that these requirements are inclusive and not become a barrier to limiting the service only to those migrants with legal status. 

China's trade, aid and investment linkages with Africa have increased exponentially in the last few years. China-Africa trade rose ten-fold during 2000-07 to $73 billion.  A recent research paper co-authored with my colleagues Dilip and Sonia documents China's increasing financial involvement in Africa (see box on "New Players in Sub-Saharan Africa" on page 13).

These links appear to have resulted in increased migration between Africa and China. Along with Chinese small business owners and migrant workers settling in African cities, Chinese companies involved in banking, construction, infrastructure, mining, and oil extraction projects in Africa also tend to bring along their workers.

A recent MPI study says that official figures show over 100,000 Chinese workers in Africa -- with their true size likely several times higher. However, these are not just one-way flows from China to Africa. Some 10,000 or more Africans reportedly live in a 10 square kilometer district in the Guangzhou province nicknamed "Little Africa" -- similar to the "Little Italys" and "China Towns" in major cities around the world. 

According to the political scientist Sasha Gong cited in the MPI study, Chinese migrants use four methods to migrate to Africa: