The impact of migration on sender countries

The economics of migration dominates much political debate in the West. How does migration impact the sender countries of the developing world?

London, which has one of the world's highest levels of immigration. The impact migrants have on destination locations is widely discussed in the press, but less explored is the effect on sender countries
London, which has one of the world's highest levels of immigration. The impact migrants have on destination locations is widely discussed in the press, but less explored is the effect on sender countries 

Now is an age of globalisation. The parochialism of the nation-state is giving way to the global village. At the same time, never before have borders been so heavily policed; walls keeping prospective citizens out so high; camps for detaining the transient so large. Yet for all these barriers to entry and hazards to navigate, the number of migrants, globally, continues to grow. In 2013 247 million people, according to the World Bank, were global migrants, while 2015 is estimated to see this number rise to 250 million.

From the borderlands of the American South West, to nearly every nation in Europe, and down to the South African cities of Durban and Johannesburg, anti-immigration sentiment is on the rise; the economic benefits of migration in migrant-destination countries hotly debated. While the impact in destination countries in areas such as North America and Western Europe is a constantly recurring debate, the economic impact – be it positive or negative – also weighs heavily upon sender nations.

Sending money south
For sender countries, one of the chief benefits of global migration is remittance payments from the departed. Migrants that have secured a job abroad often send parts of their wages to their families still residing in their home country. While the growth of remittance payments has slowed in 2015, their total global value still stands at $440bn. Further, remittance payments, due to positive predictions for the global economy, are set to pick up growth rates in 2016 and reach the value of $479bn by 2017.

One of the primary economic drawbacks of migration for sender countries is the experience of a brain drain

These large transfers of money, from the more prosperous developed world to the poorer developing, are often seen as key to the latter’s economic development. As Professor Andrew Geddes, an expert in international migration at the University of Sheffield notes, remittance payments “are a private flow that is far more significant in size, scale and impact than state to state development aid. They are private flows that put decisions to consume, invest etc in the hands of migrants and their families.” As the Philippines-based newspaper the Inquirer reported in 2013, remittance payments “sent home by overseas Filipinos now reach about $2bn per month, oiling the country’s robust consumer spending.” In Nigeria, remittance payments are said to contribute up to five percent of GDP.

Likewise, remittance payments can also be used as collateral for migrants to purchase houses in the sender country. As one report by Migration Policy notes, “The idea is to develop legal and financial procedures that permit migrants to purchase a house for themselves or their families without having to return to their country of origin. The remittances are used to pay off the loan, while the house serves as loan collateral.”

Others are less optimistic about the benefits of remittance payments. In the 19th century, the ability of impoverished populations to migrate was also viewed as an “escape valve” that dissipated social discontent. The contemporary sociologist Werner Sombart observed that the migration opportunities offered by the American West prevented social conflict in the US. At the turn of the twentieth century the German state and many newly independent Balkan states also saw immigration as providing a safety valve for relieving social discontent within their own countries.

According to Raúl Delgado Wise and Humberto Márquez Covarrubias, both of the Autonomous University of Zacatecas, Mexico, remittance payments are providing a similar function. Remittance is being relied upon by governments, in absence of meaningful economic development, as “a support for social stability.” In relation to sender countries such as Mexico, El Salvador, Philippines, and Morocco, Wise and Covarrubias write that “the chief benefit of remittance payments are used by states as, in that they mitigate poverty and marginalisation while offering an escape valve from the constraints of local, regional, and national labour markets.”

The problem with such reliance upon remittance, say Wise and Covarrubias, is that it is “in reality a perversion of the idea of development that offers no prospects for the future.” Poverty is merely being relieved through remittances, with the support of governments and international agencies, rather than fundamentally addressing poverty through economic development policies.

Unlocking funds
Beyond cash transfers for consumer spending – as economically stimulating as they may or may not be – remittance payments also have the potential to unlock much-needed funds for developing countries. These funds could be used to promote more comprehensive development initiatives. The use of remittance payments has been used in some countries as collateral for international borrowing. As the World Bank notes, the “use of future remittances as collateral – future-flow securitisation of remittances – can lower borrowing costs and lengthen debt maturity. An important element of a future-flow securitisation structure is the creation of a special purpose vehicle offshore to issue the bond and shield it from sovereign interference.” Although up to date figures are not available, in 2008 an additional $20bn had been raised by developing countries using this method.

Global migration from the developing to the developed world also opens up other potential tools for economic development. Migrants in destination countries saving their money are likely to use a deposit account, accruing little interest. This presents a financial opportunity for sender countries, through offering bonds to diaspora populations to raise funds for development.

Typically a migrant saving in a destination country will be earning little to no interest on their savings. Sender countries could offer their countrymen (and women) working abroad the possibility of purchasing a bond “with a face value of $1,000, say, carrying a three to four percent interest rate and five year maturity,” the World Bank suggests. Interest rates paid to those holding bonds would be lower than that of sovereign bonds issues, as the interest benchmark rate, determined by that of a deposit account, would be lower than the LIBOR benchmark rate.

Some countries have had success with diaspora bonds, such as India and Israel, with the former using it to support balance of payments and the latter to fund education and infrastructure projects. Migration offers the opportunity for developing countries to carry this out. For example, Bangladesh has around $9.5bn in diaspora savings, while Haitian and Afghani diaspora populations both own around $4.5bn in savings. The finance accrued from a diaspora bond could help finance much needed infrastructure projects in these countries. As the World Bank reports, globally diaspora bonds “could be used to mobilise a fraction – say, one-tenth – of the annual diaspora saving, that is, over $50bn, for financing development projects.” Nigeria, with its estimated 17.5 million migrants abroad, is presently in the process of readying diaspora bonds.

The American Uncle
In 19th century Germany there was the cultural – and actual individual for some – figure of the American Uncle. Following the 1848 revolutions, many Germans headed across the Atlantic, and made their fortunes in the US. Now as before, some migrants are able to take advantage of the opportunities offered in destination countries and make it rich. Many such migrants often engage in philanthropy, sending money back to their home countries or towns in the hopes of alleviating poverty for the less fortunate.

According to the World Bank there are “[t]wo relatively organised forms of diaspora philanthropic engagement is through Home Town Associations (HTAs) and diaspora foundations,” as well as the use of private channels. “Some governments,” the World Bank continues, “have attempted to channel collective remittances through HTAs by offering matching funds. Among the best-known matching fund schemes is Mexico’s 3-for-1 program, under which the local, state, and federal governments all contribute $1 each for every $1 of remittances received through a HTA overseas.”

These philanthropic endeavours are mostly used in rural areas to provide vital services such as healthcare, electricity or education. However, the private nature of philanthropy often means that it “is difficult to assess whether these investments—and the matching grants—have gone to the highest-priority projects or have been diverted from other regions with a great need of assistance from fiscally constrained governments,” says the World Bank. Such philanthropy may provide small, often localised poverty relief and even some economic development. However, the criticism of Wise and Covarrubias of remittance payments also applies here; it is a temporary relief measure in absence of economic development. No economy ever transitioned from third to first world through the patronage of wealthy donors.

Brain drain to Europe
One of the primary economic drawbacks of migration for sender countries is the experience of a brain drain. In the past, migration was primarily the pursuit of the rural poor, dislocated from their traditional economies by modernity, left without many prospect in their home country. However, the developing world is becoming increasingly educated. The result for sender countries of the developing world is the loss of the most educated (often so at the expense of the state) to other countries, leaving the sender country without vital human capital.

“Potentially, there is a loss known as brain drain if countries invest in skills and training (eg of medical professionals) only for these people to then leave and work in another country,” Professor Geddes says, “although there will be flows back, such as remittances and there may be the eventual return of migrants to their homes possessing more skills and experience.”Others are not optimistic. Professor Leila Simona Talani in her book The Arab Spring in the Global Political Economy, argues countries such as Tunisia and Egypt are trapped in a vicious cycle of a brain drain and marginalisation in the global economy; both continually reinforcing each other.

According to Talani, “Tunisia is lagging progressively more and more behind in terms of the technological skills necessary to enter new global productive chains. This dramatically reduces the possibility for highly-skilled personnel to find appropriate jobs in the country.” The option taken by these highly-skilled workers is often to realise the potentials of their university education in France, Germany or Italy, reinforcing Tunisia’s lag and marginalisation.

The same phenomena exists in Egypt says Talani, writing in her book that “the marginalisation of Egypt and of the MENA region from the global political economy reduces the possibilities of employing highly skilled personnel in the country, thus further adding to its marginalisation. The country seems to have entered a vicious circle which is becoming more and more difficult to break.”

Whether or not migration brings a net economic benefit to the sender countries is hard to determine. Migration offers many benefits to sender countries through the transfer of funds from those abroad through remittance, however the danger is that this becomes a substitute for economic development; with the sender countries reliant upon cash transfers but without any real economic foundation to build upon. Ideas such as diaspora bonds or using the future-flow of remittance payments to secure debt may help cash strapped sending countries with much needed funds – which if used correctly, such as to build infrastructure – could stimulate economic development.