With international remittance flows to the developing world set to top $167bn this year, a newly released report by the United Nations shows that remittance
flows to the African continent, averaging US$17bn per annum
between 2000 and 2003, have
surpassed Foreign Direct Investment during the same period.While official aid remains atop the list of external finance flows to Africa, worldwide remittance flows are more than double official aid, and governments, NGOs and the private sector alike are beginning to capitalize on these transfers as a driving force for growth.
Case
in point, the Latin American Federation of banks recently announced a plan to channel remittances into small business
loans and a range of other financial products to benefit the poor in
Latin American and Caribbean countries.
Meanwhile across the
Pacific, non-profits like Unlad Kabayan are funneling remittance
payments from migrant workers into sustainable micro-enterprise
creation.
Step further to the west and you can find emerging private
sector enterprises like Thamel.com, providing an innovative e-commerce platform as a vehicle for remittance
payments by the Nepalese diaspora. And with the proliferation of
mobile phones across the world, providers
from the Philippines to South
Africa have turned their attention to the facilitation of remittance
transfers.
Speaking
on remittances, Dilip Ratha, co-author of the World Bank's 2006 World Economic Prospects Report, notes:
"High
fees are a significant drain on the savings of the migrants and also a
significant drain on the funds that are flowing to essentially poor
people."
“Reducing remittance costs can increase
migrants’ savings and result in increased flows to developing countries
– to poor people.”
With the increasing formalization of the once
largely informal remittances market (still estimated to be as large as
50% of the formal market), improved systems and technology, such as
those mentioned above, are emerging to facilitate faster, simpler
transfers; simultaneously, and most importantly, driving down fees.
That
these improvements in the remittances market, directly benefitting the
poor, are emerging sustainably and often times profitably from the
private, NGO, and government sectors alike, attest once more to the
opportunities for poverty alleviation and income generation, lying in
wait at the bottom of the pyramid.
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What's interesting is that the report mentions the controversy surrounding remittances: should they be taxed as income? The UN report says no, but economics Prof. Bhagwati argues yes (in Oct. 6 Financial Times, "A Deeply Flawed Report on Global Migration"), particularly since the income of migrants is often higher than that of domestic workers. My opinion? I think that 1. remittances are theoretically taxable income for the recipients, however 2.the transfer of remittances to developing countries should be encouraged, not taxed BUT 3. they shouldn't be taxable anyway until recipients rise above the poverty line.