The Rushford Report 2007

$114 Billion in Asian Migrant Workers' Remittances:
Important Engines for economic growth --or scandals?

posted on November 19, 2007
by Greg Rushford

Some startling official statistics were reported last month suggesting that some 150 million overseas foreign workers who toil in low-paid jobs worldwide -- Philippine and Indonesian maids, Bangladeshi and Indian construction workers, and their intrepid counterparts from Afghanistan to Russia and Zimbabwe -- are more important economically than is generally recognized. The OFWs sent a whopping $300 billion in annual remittances to their families back home last year, according to detailed calculations in an 18-page report that was released in Rome on Oct. 17 by the International Fund for Agricultural Development, a specialized agency of the United Nations. "Sending Money Home" further noted that the OFW currency flows, typically doled out in $100- to $300 amounts that few economists and statisticians have bothered to add up, dwarfed official foreign aid donations last year ($104 billion), and also foreign direct investment in the 162 recipient countries ($167 billion). The largest share of remittances, nearly $114 billion, came from an estimated 50 million Asian workers. The Indian migrant diaspora sent home $24.5 billion, Filipinos remitted $14.6 billion, followed by $8.1 billion from Bangladeshis and $3.9 billion from Indonesians, to cite four of the largest recipient countries. "The importance of remittances to poverty alleviation is obvious," said the study, which was co-sponsored by the Inter-American Development Bank in Washington, D.C., "but the potential multiplier effect on economic growth and investment is also significant."

The report is likely to attract the attention of politicians and business elites in the recipient countries, who will be looking to see what's in the boodle for them. Indeed, some of the leaders of countries that are on the receiving end of OFW largess already have a certain gleam in their eyes. This May, for instance, Philippine President Gloria Arroyo -- an economist by training who knows a thing or two about the importance of numbers -- gave a pep talk to a group of Filipina maids who gathered at Tokyo's posh Imperial Hotel. Ms. Arroyo urged that they invest some of the record $14-plus billion that they will send home this year in the Philippine stock market, real estate ventures, government bonds, and to launch small businesses. Ms. Arroyo, who has boasted that her country exports "super maids," also has coined a new acronym for the OFWs: OFIs. "You should not be called Overseas Filipino Workers, but instead, Overseas Filipino Investors," their president told her audience at the Imperial Hotel.

Or should they? A reality check reveals many reasons why OFW remittances are extremely inefficient contributors to genuine economic growth. The cash mainly props up consumer spending in the failed economies that caused the humble minimum-wage maids and other such workers to leave their families and endure the hardships of going abroad in the first place. Much of the maids' money that is sent back home -- estimates range as high as 80% -- ends up in the pockets of the owners of shopping malls across Asia, who rake in the big bucks from relatives who go on shopping sprees (the street term for this economic phenomena is the "lazy relatives syndrome). Shoemart, the biggest mall operator in the Philippines, profits greatly thanks to OFW remittances. As for investments, SM has recently announced plans to develop new shopping malls -- in China.

The bankers and other middlemen who take a cut of the OFW money transfers, are also happy. The International Fund for Agricultural Development report estimates that some "banks generate at least 20 per cent of their net income from remittance services." Still, the report added, the bankers "have been slow to reach out to migrant workers and their families." Most remittances are cash-to-cash transfers from OFWs who are considered unqualified for regular checking or savings accounts. "As a result, remittance recipients cannot save, borrow or build up credit histories through these banking institutions," the report noted. In Asia's backward economies, bankers' bottom lines may depend upon money collected from some of the poorest people in their economies - but they lend to the rich.

If the already-rich oligarchs who get richer thanks to OFW money, especially in impoverished Asian non-tigers like Indonesia, Bangladesh and the Philippines, have little incentives to support serious economic reforms that would change the status quo, so do the bureaucrats. OFW cash also winds up in the hands of corrupt immigration officials in airports who extort bribes from departing and returning workers. "The workers are squeezed dry in each turn and twist of the migration process, from exorbitant placement fees during the application period, to expensive passport and consular fees at the job sites, to petty and big-time extortion upon arrival," observes Arnel De Guzman, a Philippine activist who has been patiently advocating better treatment of OFWs for more than a quarter century. For the maids, very little cash is left over to invest in enterprises that could generate returns on their money.

Indeed, one wonders what the Filipina maids whom President Arroyo addressed in Tokyo thought of the suggestion that overseas worker-investors should be eager to launch new enterprises in their home countries. Talk about a reality mis-match. The OFWs know very well how difficult it would be to stay home and become entrepreneurs in the poorer parts of Asia -- that's why they decided to migrate. Two months ago, the World Bank released a report that explained the litany of obstacles the poor countries throw up that discourage many would-be entrepreneurs . Anyone who wants to start a business in Indonesia, for example, must grovel for 12 official government permissions -- licenses, permits, clearances, inspections and such -- issued by various agencies, a process that averages 105 days. India requires 13 permissions, but at least they "only" take 33 days. To get a business up-and-running in Bangladesh involves 8 procedures over 74 days; in the Philippines it's 15 permissions and 58 days. By contrast, in Hong Kong it takes just five comparatively simple procedures and 11 days to start a business. Singapore, the easiest place to become an entrepreneur in Asia, requires only 5 permissions that take just 5 days. You'd think that politicians in the red-tape countries would emulate Hong Kong and Singapore, but they don't.

Since Ms. Arroyo has volunteered for a leading role as the advocate of Asian OFWs as potential investors who will become driving engines of economic growth, let's look further at the Philippines through the eyes of the overseas workers.

What are the maids who have escaped the miseries of their native country to work in a world-class financial centers like Tokyo, Singapore and Hong Kong supposed to think of Ms. Arroyo's notion that they should start risking a portion of their salaries in Manila's chronically under-performing bourse? If you are going to become a punter, might as well hit the casinos in Macau and have a little fun on a Sunday day off. And when it comes to talking about unwise investments, the maids could point to the track record of a Philippine government agency known as the Overseas Workers Welfare Administration. The OWWA has accumulated a kitty of hundreds of millions of dollars, collected $25 at a time from departing OFWs. Unfortunately, the OWWA bureaucrats in Manila have a long history of investing the maids' money in various failed real estate ventures and other dubious financial transactions. And the Philippines being, well, the Philippines, politicians sometimes seem to have a difficult time keeping their hands off the money.

Last year the respected Philippine Center for Investigative Journalism published an article in which reporter Alecks Pabico detailed OWWA's various failed investments. "OFW groups have also denounced the alleged gross misuse and plunder of OWWA funds in relation to" President Arroyo's 2004 election campaign," Mr. Pabico reported. Mr. Pabico reported that the OFFW had transferred more than $10 million to other Philippine health and employment agencies, which forked over the funds to help Ms. Arroyo's campaign. "The money enabled Arroyo to give away Philhealth cards valid for a year to people in the places she visited during the campaign," Mr. Pabico wrote. "OWWA, by that time, had already been turning down health claims of hundreds of overseas workers and eventually stopped all medical reimbursements in a meeting on January 16, 2004." Ms. Arroyo's spokesman, Ignacio Bunye, declined to respond to phone calls and an e-mail request for comment for this article.

Is it asking too much for the politicians in the recipient countries to consider doing two things before they ask OFWs to risk their hard-earned money by investing it back home? First, they could stop treating these economic heroes and heroines in a scandalous manner. And then, they might get serious about enacting real economic reforms that would give desperately poor citizens who want to feed, clothe and educate their families incentives to do that -- without having to leave their own native countries. .