In
preparation for the Global Forum on
Development 2013, Lova
Rakotomalala of Global Voices discusses how to better link remittances and
sustainable development.
As Western economies struggle with rising debt and
unemployment, their approach to development and cooperation with low-income
countries and emerging markets has taken a twist. It is becoming more clear
that sustainable development should not be based on external wealth or
redistribution, but must instead be generated at home.
Foreign investment and remittances have long been
identified as a crucial source of revenue for poor populations in countries
like Mali or Cape Verde. Entire villages have been built out of remittances in
Mali, for instance, mainly from immigrants to France. However, this does not
mean that these countries are being helped to develop sustainably.
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Preparing a new
thatched roof in Mali. Photo by Jean-Marc Desfilhes on flickr (CC BY-NC-SA 2.0)
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For most African countries, the positive ability to
attract capital is often negated by lenient fiscal policies towards foreign
investors that strip countries of public revenues to build up their economies.
This trend seems was still on the rise worldwide in 2007 according to an OECD
report "Tax
Effects on Foreign Direct Investments".
A report by Matthew
Martin and Nils Bhinda from Development Finance International shows that in
Tanzania, for instance, the influx of private capital from global mining
companies increased the volume of gold and diamonds sales. However, this failed
to produce the expected social benefits, such as increased government revenues
or public investment in social infrastructure. In fact, various tax exemptions
and fiscal incentives ended up costing Tanzania $140 million
USD from 2005-2008.
Remittances:
Money at what cost?
A growing
number of poor households worldwide are subsisting on remittances,
according to the World Bank. Still the question remains: can these seemingly
successful flows of migrants and money secure sustainable development and
reduce poverty in the most affected countries?
Remittances from abroad to Mali amounted %3.7 of the
countries GDP for the year 2005-2006, and according to some
estimates remittances significantly decreased the number of poor in Mali
and also reduced inequality. Cape Verde is another nation that has seemingly benefited
from emigration as the country with the highest
per capita remittances of any African country. With remittances amounting
to 8% of the country's GDP, it has even overcome the challenge of establishing
banking institutions for the poor on its many islands thanks to financial
capital from migrants in Portugal, Brazil and the USA.
Because of such statistics, many international
development institutions have attempted to design development
policies based on remittance flows, by trying to convert this “subsistence”
money into capital for infrastructure. There are some caveats to consider
though.
Despite the growth of remittance flows, one should keep
in mind that the very concept of remittances originates from a major outcome of
global poverty: economic migration. Those who choose to leave their country are
often exposed to risks and
dangers during the transition (illegal border transfer, human traffickers,
social and cultural isolation).
Moreover, remittances from migrants are highly dependent
on the economic growth of the host countries. When unemployment in host
countries rises, it frequently affects the type of labor available
to most immigrants, putting both them and families back home at further
risk of precariousness. Finally, the peer-to-peer nature of remittances is both
a blessing and a curse. As Hein de Haas writes in an
article for Third World Quarterlyin 2005:
The much-celebrated micro-level at which remittances are transferred is not only their strength, but also their main weakness, since this also implies that individual migrants are generally not able to remove general development constraints.
Because of the lack of incentives for locally-produced
added value, it appears that remittances based on value created abroad can
never be the sole base of a sustainable development strategy for low income
countries.
Good
measures for sustainable development
There are some measures that can be implemented to
support foreign direct investment and remittances towards a more sustainable
world.
First, transparency and accountability. With respect to
foreign investments, governments should offer proper projections of the benefits
for public finance, or projects should not be allowed to take place. Financial
policies should encourage a permanent check and balance system for both private
and public flows with an obligation of transparency for the source of the
revenues and their further use. Transparency, in the
form of regular and mandatory publications to civil society should be
mandatory.
Low income countries often resort to the setting up Industrial Free Zones
(IZF) to spur industrialization and create jobs in strategic locations with
mineral resources. The creation of these zones have often led to economic and
social instability through a constant race to lower costs, geographical
mobility and low-quality production. Therefore if a government chooses to
implement an IZF, it should also plan for a rapid conversion of labor and
production capacity to evolve with markets.
This concept is all the more important because so far
there has been no concerted effort to integrate local products of low income
countries and services in global trade. Inter-regional trade should remain the
main goal because it provides geographical proximity and reduces vulnerability
to the whims of highly mobile multinational companies.
With respect to migration and remittances, a drawback of
global inequality is the tendency of qualified students from low income
countries to remain in richer countries to pursue careers, a phenomenon also
known as the "brain
drain". As the recession takes its toll on employment in Western
countries, a “reverse
brain drain” effect has emerged for Nigeria, Ghana, Morocco and other
countries where there are competitive salaries and working conditions.
It would make sense for policymakers worldwide to start
to embrace a simple idiom to ensure sustainable development: the creation of
wealth through added value and redistribution must start at home. Policies
based on short term incentives, social inequities or external wealth injection
might spur growth temporarily, but it is doubtful that they will sustain
poverty reduction in the long run.
Lova
Rakotomalala of Global Voices
This blog
first appeared on the OECD Global Forum on Development 2013 site, here.
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