Every year, the volume of funds sent by diasporas to low- and middle-income countries increases. Today, it represents over triple the amount of Official Development Assistance. But do these funds really contribute to development?

According to the World Bank, remittances towards developing countries beat a record in 2018: they reached USD 529bn, i.e. 9.6% more than in 2017. There is a constant increase every year.

The Asia Pacific region arrives in first place in the ranking of the recipient territories of these funds. Latin America and Africa are in second and third place, respectively. India is the top recipient country with USD 79bn, followed by China (USD 67bn), Mexico (USD 36bn), the Philippines (USD 34bn) and Egypt (USD 29bn). But do these remittances really benefit the development of countries of origin?

 

Funds which do not reach circuits of the formal economy

Two-thirds of the funds mobilized by diasporas are used to cover the everyday needs of the recipient populations. They meet urgent and daily needs without irrigating the circuits of the formal economy which can create long-term wealth: infrastructure and development projects, SMEs… But according to the Liberian educator Edmund Zar-Zar Bargblor, these remittances are counterproductive when they cover essential needs that are not borne by public authorities.

These funds need to be complementary to public policies and aid for development rather than substituting them. As also pointed out by Catherine Wihtol de Wenden, Research Director at CNRS and a specialist in migrations: “We must hope that these remittances are not the only resource [of families living in countries where the insecurity is economic, health or political] in the same way as aid must not be the sole resource of developing countries.”

 

 

Mobilizing diaspora investments

If we start by reducing the commissions applied by the dominant companies in the international remittance sector, we could allow the full use of diaspora remittances and maximize their positive impact on development. Target 7 of SDG 10 thereby aims to reduce these commissions to 3% by 2030. The deductions made by the leaders Western Union and MoneyGram can be up to 15%, which amounts to EUR 1.6bn of annual earnings in Africa alone.

Furthermore, new local initiatives from fintechs address the challenge, such as WorldRemit in Somalia or Bitpesa in Senegal, by proposing commissions at between 3 and 5% of the amounts transferred. The diaspora challenge initiative, for its part, aims to mobilize the world’s African diaspora for fintech projects that propose solutions for the education and energy sectors. According to Carl Manlan, development structures need to more specifically address the diaspora, which international donors such as the International Fund for Agricultural Development are increasingly doing.

But initiatives also and especially come from the diaspora itself. To carry out development actions in their country of origin, Moroccans in France have set up the organization Migrations & Développement. Their actions fit in with the world agenda in terms of development priorities: creation of infrastructure, mainstreaming gender, education and support for income-generating activities. It is a way of devising an action for development by diasporas that is complementary to the actions of public authorities and international donors.

 

Developing host countries

Over a third of international migrants reside in developing countries. The contribution made by diasporas to development is therefore not only measured in terms of remittances towards countries of origin: they could also contribute to the development of their host countries.

In a recent study, the OECD and ILO show that the impact of migrants on the labor market in ten developing countries is limited, despite strong potential. The estimate of the contribution of immigrants to GDP ranges between 1% in Ghana to 19% in Côte d’Ivoire, with an average of 7% in the ten countries studied. This result is partly due to the lack of integration into the formal economy of migrant workers and to the discriminations they face. Development through migration is correlated with both the structuring of employment and in-depth work on the perception of migrations. All the stakeholders need to conduct this reflection to ensure that diasporas contribute to development according to their potential.

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