worker remittances: an international comparison

Worker Remittances: An International Comparison

Manuel Orozco Inter-American Dialogue February 28th, 2003

Inter-American Development Bank

Worker Remittances: An International Comparison

Manuel Orozco, Inter-American Dialogue Project commissioned by the

Multilateral Investment Fund of the Inter-American Development Bank February 28, 2003

Remittances in International Context l l

l

l

Global trends in international remittances Payment systems, distribution networks and costs Transfers from the United States to main recipient countries Comparing trends with Latin America

Worldwide flows of worker remittances by region, 2002

Europe & Central Asia, 13%

East Asia & Pacific, 14%

South Asia, 20%

0%

10%

20%

30%

Middle East & N. Africa, 18%

Southern Africa, 5%

40%

50%

60%

Latin America & Caribbean, 31%

70%

80%

90%

100%

Remittances to Major Remittance Recipient Countries (2000) Country in region

Share Region

Worldwide

India a

73%

15%

Mexico a

34%

8%

Philippines a

43%

8%

China b

43%

8%

Turkey a

27%

6%

Egypt a

35%

5%

Spain a

20%

4%

Portugal a

19%

4%

Morocco a

20%

3%

Bangladesh b

12%

2%

Jordan b

17%

2%

El Salvador a

9%

2%

Dominican Rep. a

9%

2%

Greece a

10%

2%

Nigeria b

65%

2%

Yemen b

12%

2%

Main countries

75.00%

The Relevance of Remittances Remittances as % of Exports

Remittances as % of ODA

Remittances as % of FDI

Remittance as % of GDP

Country Egypt

80%

Greece

16%

India

27%

Pakistan

12%

Portugal

13%

Philippines

15%

Turkey

17%

282%

303%

4%

149%

1%

779%

500%

3%

155%

353%

2%

50%

3%

1047%

298%

8%

1403%

464%

2%

Average costs of sending money to selected Non-Latin American countries 12.00%

12.00% 10.90% 10.00%

8.00% 6.50% 6.00%

7.00%

Bank Major MTO

4.00%

2.00%

1.70% 1.00%

0.00%

FX %

Fee %

Total %

Banks and remittances l

Philippines

• • l

Turkey

• • • l

Competitive market Significant participation of Filipino banks as MTOs Special interest rates for foreign currency deposits Import privileges for migrant workers Several banks offer efficient money transfer to Turkey

Portugal

• • •

Accounts offered to non-residents at reduced tax rates Special financing programs to build or buy homes in Portugal Low cost remittance transfers

Banks and Remittances l

India

• • l

Pakistan

• • l

State bank offers bonds and accounts to non-residents Accounts have higher interest and reduced tax rates Government program provides incentives to remit through financial banking channels Participants receive benefits such as import duty exemption

Morocco

• •

State-run bank offers joint checking accounts for remitters and recipients Low fee wire transfers

Charges to send $200 to selected countries

14.00%

13.80%

13.80% 13.00% 12.30%

MTO Banks

12.00%

12.00% 10.30% 9.50%

10.00%

9.50%

8.00% 8.00%

7.00%

6.80%

6.00% 6.00%

4.00%

3.40%

3.10%

2.00%

1.00% 0.40%

0.00%

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Average Remittances Sent by Immigrants in the U.S. (US$, selected countries)

1200 1000

1104

India Pakistan Bangladesh

790

Philippines

800

Mexico 562

600

Egypt 397

400

El Salvador

385 307

200 0 Source: NMTA, January 2003

Dom. Rep. 280

203

Comparing Latin America and the World: Money Transfers to Latin America are primarily sent through MTOs and thus more expensive.

U.S. to Philippines

Bank 8.0%

Greece

Major MTO 10.3% 13.8%

U.S. to

Major MTO

Avg.

Cuba

13.00%

12.50%

Jamaica

11.80%

10.99%

Haiti

11.20%

8.78%

Dominican Republic

10.14%

8.69%

India

7.0%

12.2%

Pakistan

0.2%

14.0%

Honduras

9.72%

7.73%

Portugal

0.8%

13.8%

Mexico

9.60%

7.73%

Turkey

13.1%

Colombia

9.31%

7.24%

Zimbabwe

11.9%

Nicaragua

9.25%

7.16%

Guatemala

9.06%

7.73%

Ecuador

9.06%

5.94%

El Salvador

8.02%

6.32%

Bangladesh Ghana

8.0%

Perspectives on the global context l

As globalization deepens, so does the movement of people

l

Trade, transportation, telecommunication, transfer of remittances, tourism and nostalgic trade intensify the links between migrants and their home countries.

The marketplace for remittances is diffuse.

Countries with a longer history of migration tend to rely on banking institutions: governments and banks learn to capitalize on the benefits of migration by extending financial links between diasporas and their home country relatives.

The links significantly reduce transaction costs and increase benefits to senders and recipients.

Countries with a more recent remittance sending pattern undergo a process of maturation as the market grows more competitive. This competition is reflected in a relationship between price decline and a reduction in the number of intermediaries.

From a policy perspective, alliances between governments, civil society and private sector institutions must be formed in order to share best practices and coordinate strategies to improve the flow of transfers.

l l

l l

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Transnational Communities’ Integrating the Western Hemisphere

Transfer of Remittances

Transnational investment

Telecommunication

Migration

Nostalgic Trade

Transportation

Tourism

Worldwide costs and distribution mechanisms Receiving country

Remittance sent from

Philippines

United States

Egypt

United States

Greece

Germany & U.S.

India

Number of companies reviewed Banks

MTO

Other

5

14

5

All busines ses

24

2

2

4

2

6

Saudi Arabia, U.S., U.K.

7

11

18

Pakistan

Saudi Arabia, U.S., U.K.

7

1

8

Portugal

France, U.S.

3

2

5

Turkey

Germany, U.S.

3

2

5

Mozambique

South Africa, U.S.

1

Zimbabwe

South Africa, U.S.

Bangladesh Ghana

U.K.

U.K.

1

1 7

7

3

4

7

7

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