Working abroad, supporting the family at home

Vincenzina Santoro
22 February 2013
Reproduced with Permission

The Philippines, one of Asia's rising economic stars, is one of many countries that rely on exporting people and importing their earnings. In numerous families household consumption is boosted by the money received from those family members who have emigrated in search of work and decent earnings and sent home a part of their wages and salaries.

Filipinos, and many other emigrants, have filled the job openings of population-deprived countries and employee-starved companies across the globe. Without much fanfare, the poor of the world are working quietly and consistently on their own to improve their lives through migration and remittances, a phenomenon that has become more effective than either foreign aid or investment in reducing global poverty, as funds go directly into the hands of the poor.

For a long time governments of rich countries, international institutions and private organizations have striven to alleviate poverty around the world. The United Nations even adopted a set of eight Millennium Development Goals to "eradicate poverty" by 2015 - an objective not likely to be met. Today there are an estimated 1.3 billion people around the world who survive on less than $1.25 per day. Well-intentioned programs to deal with poverty are mostly driven by a top-down approach as development funds flow to poor countries through foreign aid and investment from abroad.

According to data compiled by the OECD, more than $2 trillion has been disbursed in foreign assistance since 1950. Yet poverty remains widespread, there is little or no accountability and the least developed countries are among the most corrupt, as shown by several surveys such as the annual compilations by Transparency International.

In 2011, net official development aid amounted to $134 billion. The United States, consistently the world's largest official donor, provided $31 billion but is constantly badgered for spending "only" 0.2% of its Gross National Income on aid and failing to meet the 0.7% target advocated by the UN. However, this ratio has no rational basis, is a completely arbitrary number and, stating what should be the obvious, a percentage does not solve poverty!

With the help of foreign direct investment, poor countries have benefited from capital inflows to develop industries, introduce new skills and technologies and create jobs. According to UNCTAD which compiles cross-border capital flows, foreign direct investment (FDI) totaled $1.3 trillion in 2012 of which $680 billion was invested in developing countries, the first year that more than half of all FDI went to developing countries. This is encouraging news but these projects tend to be confined to specific areas and may not benefit a wide population.

Despite a relatively brighter economic picture in the developing countries, unemployment remains high and many emigrate. Some move to urban areas within their own countries, others go abroad to more prosperous and promising countries in search of work and a better life for themselves and their families.

The UN estimates that there are more than 215 million persons residing in a country other than where they were born, three percent of the global population. These emigrants are mostly young people of working age, eager to find any remunerative work. Once they start earning they usually send a part of their income to their families back home. Emigrants' remittances put funds directly into the hands of the poor, unlike foreign aid which goes to governments and is often misspent.

The World Bank, which yearly collects and publishes data on remittances, has estimated that cross-border emigrants' remittances exceeded the half trillion dollar mark for the first time in 2011 and in 2012 reached $534 billion - four times the foreign aid total. The largest amounts went to some of the most populous countries, as the table below indicates, China and India being the largest recipients with $70 billion and $66 billion, respectively.

Perhaps a better gauge of the economic impact of remittances can be observed in smaller and poorer countries where remittances account for a significant share of their economy. In 2011, eight countries received remittances that exceeded a fourth of their respective GDP. The highest percentages were in Tajikistan where remittances represented 47% of GDP and in Liberia 31%.

Another perspective on remittances is that despite the severity of the global recession, emigrants' remittances showed remarkable resilience. Remittances declined only in one year, by just 2% in 2009. However, they doubled between 2000 and 2005 and doubled again from 2005 to 2012.

Notwithstanding the large amounts, remittances may be even higher given that funds can be remitted not only through official channels such as banks and money transfer agents like Western Union and MoneyGram, but can be brought home by messengers - friends or relatives returning to the same home town. Money can be transmitted via mobile phones too.

Some countries such as the Philippines have large expatriate communities. An estimated one-fourth of the Filipino labor force works outside the home country. OFWs (Overseas Filipino Workers) as they are colloquially known, can be found in significant numbers in the construction industry in the Middle East, as medical personnel and caretakers in the United States and Britain, and as crew members on sailing ships. This variety ensures diversity and resilience to remittances, which in 2011 amounted to $24 billion or about 10 percent of the country's GDP. There is a Commission on Filipinos Overseas and a Remittance for Development Council operating to create initiatives to harness these transfers for savings and productive investments. The Central Bank of the Philippines even provides counseling on saving, investing and money management for migrant families.

Emigrants' remittances are the unsung success story of economic development and poverty reduction. Unlike official aid or direct investment, money sent home goes directly to the family members left behind: mothers, fathers, siblings, spouses, and children. The recipients have the freedom to spend as they wish and can use these funds for improving their lives by enhancing nutrition, providing for medical care, making home improvements, educating their children - especially girls, who might otherwise not have that opportunity -- starting or expanding a business, and maybe purchasing a new residence. In some communities, remittance recipients organize and fund projects for their village, such a clinic or school, delivering a better quality of life that extends beyond their immediate families.

Remittances have both economic and social aspects as migrants abroad continue to reduce family indigence through their own personal sacrifices and resourcefulness. The latest World Bank projections indicate that remittances will rise 8.7% per annum over 2013-2015 to $615 billion. Their sheer magnitude and continued growth are a significant factor in alleviating poverty, driving consumption and supporting economic growth in recipient countries.

Despite economic fluctuations, labor force constraints in most OECD countries will continue to provide employment opportunities for migrants from developing countries, ranging from unskilled jobs to highly qualified professional positions. While some economists worry about the "brain drain" others see the other side of the coin, the "income gain" benefitting people directly as they lift themselves out of poverty.