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A blog about migration, remittances, and development

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This blog is hosted by Dilip Ratha, lead economist at the World Bank. Its goal is to leverage migration and remittances for development.  
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Will the global financial crisis affect the presence of China in Sub-Saharan Africa?

Submitted by Sonia Plaza on Wed, 02/11/2009 - 16:36

Chinese President Hu Jintao will visit Mali, Senegal, Tanzania and Mauritius this month to discuss a series of measures to help African countries cushion the impact of the global financial crisis.

Over the past decade, China has been consolidating its economic relationship with various African countries.  Given the crisis, I thnk it would be interesting to discuss if China will maintain its aid, trade, investment and migration flows to Sub-Saharan Africa and if there will be opportunities for new innovative financing mechanisms.

In her recent book, "Dead Aid," Dambisa Moyo mentioned that “if you start to look towards China for example, which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market." 

Some recent developments on this front: 

Ethiopia announces first diaspora corporate bond

Submitted by Sanket Mohapatra on Wed, 01/14/2009 - 14:36

Ethiopia announced perhaps the first sub-sovereign corporate bond aimed at the diaspora. A release by the Ethiopian Ministry of Foreign Affairs says that the bond launched on December 23rd will provide funds to the Ethiopian Electric Power Corporation (EEPCO) for investments which will increase power supply to the nation, where only 27 percent of the people currently have access to electricity.

The government-guaranteed bond will be issued for a minimum denomination of US$500, maturing in 5, 7 or 10 years (with interest rates of 4%, 4.5% and 5% respectively). The interest earned would be free of income tax.  The news that companies in developing countries are starting view migrants as a potential source of external (hard currency) finance is indeed noteworthy. I will post more details as they become available.

Sri Lankan migrants to be allowed to invest in government securities

Submitted by Sanket Mohapatra on Wed, 01/14/2009 - 13:09

Sri Lanka recently announced that it would open up the government securities market for its migrants abroad. Sri Lankan diaspora and migrant workers would be allowed to invest in rupee denominated treasury bills and treasury bonds.

The press release by the Sri Lanka central bank suggests that this measure “…is expected to widen the investor base, diversify the Government Securities market, make it more convenient for Sri Lankans living abroad to access Government Securities, and to create a more stable Government securities market. This scheme will also provide a safe and highly liquid investment opportunity for Sri Lankans living abroad, while providing them with an attractive return on their investments.”

How remittance securitizations can help developing countries during a credit crisis

Submitted by Sanket Mohapatra on Wed, 08/27/2008 - 17:14

Despite the current economic climate, a recent Standard & Poor's research report found that remittance securitization and securitization of other future flow receivables in emerging markets are performing well, bucking the trend in global credit markets.

In a 2005 paper by Suhas Ketkar and Dilip Ratha, the authors found the securitization of future remittances and trade, tourism, credit card and other future receivables (together called "Diversified Payment Rights" or DPRs) are a useful tool that can help developing countries maintain access to international capital markets especially in times of crisis.

Dilip’s research as well as the World Bank’s 2006 Global Economic Prospects report, emphasizes that one of the reasons for the robust performance of this asset class is the "countercyclical" nature of remittances.

The S&P report backs this up by stating, "Some of these, such as worker remittances, also offer the benefit of countercyclical performance: that is, their flows often increase when domestic economies weaken...Investors often value worker remittances for their countercyclical nature: that is, workers typically send more money home during periods of economic crisis in their native countries."

Remittances reduce poverty

Submitted by Dilip Ratha on Fri, 06/20/2008 - 10:25

I'm originally from a small village in India. There is no doubt that many of the people I knew growing up were able to survive because of the money their relatives sent back home to purchase the most basic staples. In development jargon, this money is known as remittances, but from my point of view, this money was a lifeline.

Remittances directly augment the income of those households that receive them. In addition to providing resources for the poor, they affect poverty and welfare through a whole host of indirect multiplier effects and also macroeconomic effects. The beauty of these flows is that they don't suffer from the governance problems that may be associated with official aid (i.e. the money goes from one wallet to another, sans most of the red tape in between).

On a larger scale, analysis across countries worldwide shows the significant poverty reduction effects of remittances: A 10 percent increase in per capita official remittances may lead to a 3.5 percent decline in the share of poor people.

Recent research shows that remittances have reduced the poverty headcount ratio (percent of population below the national poverty line) significantly in several low-income countries-by 11 percentage points in Uganda, 6 percentage points in Bangladesh, and 5 in Ghana. In Nepal, remittances may explain a quarter to a half of the 11 percentage-point reduction in the poverty headcount rate over the past decade (in the face of a difficult political and economic situation).

Just based on the simple figures I've referenced, does it not behoove us in the development community, especially policymakers and governments, to facilitate the investment and flow of money across borders?