Global credit crunch puts pressure on migrant workers

Vast sums of money criss-cross the globe each day, as millions of migrant workers send a portion of their pay packet home.

This surging flow of funds supports one in 10 people on the planet, but the world financial crisis could slam on the brakes.

In some cases it’s the workers that are now making the journey home, rather than the money they’ve earned, month after month, in a foreign country.

“I was in Doha, talking to a guy from Djibouti and he says he makes about $500 to $600 a month and sends about $300 to his family,” says economist Dilip Ratha, the head of the World Bank team which studies these money flows, known as remittances.

“Basically, every penny he doesn’t spend goes home. And I’ve heard the same story from Pakistani undocumented migrants in Madrid, from Bangladeshis in Austria, El Salvadorians in Washington – they basically move to send money home.”

The World Bank estimates the value of these often invisible cash flows at anywhere between $350bn and $600bn (£236bn – £405bn) per year.

Exact numbers are very difficult to estimate as they are based both on traceable channels – like banks – and cash carried across borders by hand or via informal brokers.

A resilient resource

But the same is estimated at up to three times the amount of money transferred from richer countries to the developing world by governments and international institutions as aid.

The flow of remittances has been rising by as much as 30% year on year in some areas, but the rate of growth has already dramatically slowed.

In 2009, the World Bank predicts, the amount sent home by the world’s 150 million international migrants could fall by about 1%.

Mexico – the third biggest recipient of remittances in the world – is forecasting that income will dip in 2008 by almost 8% from the estimated $23.8bn in 2007.

“We are very worried that remittances will not grow in the coming years because of the financial crisis in the developed countries which are the main source of remittances,” says Mr Ratha.

Migrant workers – working hard to alleviate need at home – often represent a resilient income source for developing countries.

In 2007, they generated almost half of Tajikistan’s Gross Domestic Product and more than a third of Lesotho’s, according to the World Bank.

And in the past when times are tough in the receiving country more money, rather than less, has arrived back home.

Spending less

But this new financial crisis is unparalleled in its global scale, warns Pedro de Vasconcelos, an expert on remittances for the International Fund for Agricultural Development, hitting rich and poor countries alike.

“Many migrants have two or sometimes three jobs,” he said.

“They might lose one. Imagine they have an income of $1,500 and they send 20 – 50% of the money home and live with the rest. When they absorb the shock they just try to live with less so they can maintain the flow of remittances. But they still have to live.”

Many migrant workers in the US are employed in the service industry and when richer Americans decide to cut back on their Friday night meal out, or decide that they can’t really afford to pay the nanny anymore, he warns, the impact will be direct.

“In the US, there is this electric feeling in the air – nobody knows how it is going to affect their lives. Everyone is frozen, spending less. If the crisis starts settling and being more obvious, it will affect the Latin American communities in the US.”

But while remittances are predicted to dip, other sources of income received by developing countries from outside could decline far more steeply.

Experts predict that aid and foreign investment in developing countries, currently standing at $1 trillion per year, could be halved as a result of the financial crisis.

Remittances could therefore become even more important to a nation trying to make ends meet, but there is a debate about how effective they are at promoting development.

Migration culture

Some believe that channelling money directly into the pockets of family members is the most direct form of development available – ensuring the money reaches those who need it most.

But others see remittances as both socially disruptive and even politically dangerous.

“They don’t automatically lead to development,” argues Stephen Castles, Professor of Migration and Refugee Studies at the University of Oxford.

“There are cases where countries encourage people to emigrate as workers in order to reduce unemployment and political pressure – getting them to move out reduces political discontent,” he says, citing the Philippines as an example where a culture of migration has become the norm.

“There are actually colleges in the Philippines where qualified doctors are retraining as nurses because it is easier for them to find work as nurses in the West, so you actually get people being de-qualified in order to migrate,” he says.

And because remittances are by their very nature private and often untraceable transfers of money they can end up sustaining fighting, rather than promoting prosperity.

“If you think about Somalia, the only way to send money is through irregular and informal channels. That’s the danger, because it isn’t controlled, it could fuel further conflicts.”

But Mr Ratha is a fervent believer in the transforming power of migrants – and the money they send home – to help move a country out of poverty.

“Remittances can provide food, or clothing, or housing or educational expenses or capital for small businesses for the family,” he says. “In the end, people are what we want development for.”

Credit: Stephanie Holmes
Source: BBC