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Remittance investment and knowledge-sharing can help lift poorest nations – UN report

Migrants, such as these workers in Jordan, send remittances to their home countries.
IRIN/Maria Font de Matas
Migrants, such as these workers in Jordan, send remittances to their home countries.

Remittance investment and knowledge-sharing can help lift poorest nations – UN report

Remittances to the world’s least developed countries (LDCs) must play a greater role in reducing poverty while also empowering those countries’ economies to grow, the United Nations trade and development body urges in a new report.

In the 2012 edition of its LDC report, released today, the UN Conference on Trade and Development (UNCTAD) notes that with remittances forecast to grow over the medium-term, the world’s poorest nations should ensure better banking and financing services to allow for greater domestic investment, small business development and job creation among their increasingly urbanized populations.

Remittances – the money sent by migrants to their home countries – have grown eight-fold between 1990 and 2011, and are now worth $27 billion dollars on a global scale, according to the report. Moreover, they have continued to rise despite the impediments posed by the 2008 global economic crisis and consequent fears of financial stagnation.

The report – entitled Harnessing Remittances and Diaspora Knowledge to Build Productive Capacities – also urges governments to reduce the transfer costs associated with remittances, which often run as high as 12 per cent. In 2010, for instance, money sent to sub-Saharan Africa could have generated an estimated $6 billion for recipients if the costs associated with the transfers had been lower.

The potential pay-off for LDCs posed by remittances is “significant,” the report notes, considering that some 27.5 million LDC citizens live and work abroad. Over the past decade, remittances have steadily surpassed the value of foreign direct investment to LDCs.

At a press conference in Geneva, UNCTAD’s Secretary-General, Supachai Panitchpakdi, today added to the report’s call for LDC governments to take greater action in freeing up liquidity provided by remittances and guiding it towards domestic development opportunities.

“LDCs cannot always remain dependent on official development assistance [ODA],” Mr. Panitchpakdi told the gathered journalists, noting that ODA continued to exceed remittances as a source of foreign financing. “They have to make their own effort to mobilize their own capital.”

UNCTAD warns, however, that with the growing danger of global economic stagnation and deflation, LDCs must escalate their policy rethink of how remittances can promote industrial development and structural transformation through a freer channel of investment.

“This may entail a range of policy interventions, such as domestic and regional development policies aimed at inducing private investments,” the UN report notes, adding that new measures could also include “appropriate financial and regulatory reforms designed to reduce transaction costs and promote greater financial inclusions and credit provision for small- and medium- sized enterprises.”

While money flows from LDC migrants are crucial to the advancement of the world’s poorest nations, it is the migrants’ very departure which often contributes to the further debilitation of an LDC’s chances of development.

According to the UNCTAD report, the impact of “brain drain” on LDC countries appears to reinforce international inequalities in the availability of qualified personnel, and to damage LDCs’ prospects for long-term economic growth.

“Brain drain causes great damage to impoverished countries by removing the very people who could most help in stimulating economic growth,” the report states, adding that skilled, highly educated citizens are needed in the poorest countries to help them cope not only with development challenges but also the rising threat of climate change and its after-effects.

In an effort to counter the negative effects of “brain drain,” the UN agency has proposed a knowledge-transfer scheme – known as the investing in diaspora knowledge transfer – aimed at enabling highly skilled members of the LDC diaspora, including an estimated two million university-educated migrants, to drive learning and investment in home countries. The initiative would provide diaspora members with preferential access to the seed capital required to initiate investment back home at preferential interest rates.

“It is clear that there is a need for a special plan to motivate skilled LDC diaspora members to help build the knowledge bases and innovative capabilities of their home countries,” UNCTAD concluded in a news release on the report, while warning that the skill imbalance prevalent among LDC countries was already constraining their development prospects.