unctad.org | Single Year Expert Meeting on Maximizing the Development Impact of Remittances
Statement by Mr. Petko Draganov, Deputy Secretary-General of UNCTAD
Single Year Expert Meeting on Maximizing the Development Impact of Remittances
Geneva
14 Feb 2011

[AS PREPARED FOR DELIVERY]

H.E. Mr. Juan Jose Garcia Vasquez, Vice Minister of Foreign Affairs, El Salvador
H.E. Mr. Juan José Gomez Camacho, Ambassador of Mexico to the United Nations in Geneva
Excellencies,
Distinguished delegates
Ladies and gentlemen,

This meeting is particularly timely, as it comes after a year in which migrant remittances to developing countries are estimated to have recovered after their fall during the economic crisis. Moreover, the General Assembly´s informal thematic debate this May on international migration and development will shape the second United Nations High-level Dialogue on Migration and Development to be held in 2013. Potentially therefore, this meeting can serve as a useful contribution to that process.

It is a great honour for UNCTAD to welcome H.E. Mr. Juan Jose Garcia Vasquez, Vice Minister of Foreign Affairs in charge of Migration Issues in El Salvador. Let me also take this opportunity to extend a warm welcome to the principals and high-level representatives of the Global Migration Group and its Chair, whose participation will enable us to broaden our perspective on the issues being discussed. We are also most grateful to H.E. Mr. Juan José Gomez Camacho, Ambassador of Mexico, who will share with us the outcome of the Global Forum on Migration and Development, which took place in Mexico last November.

Ladies and gentlemen,

International migration flows increased from 195 to 215 million between 2005 and 2010 and are estimated to reach 405 million by 2050, which is the equivalent of more than the entire current population of South American on the move. The world is crisscrossed with migrant paths, including and increasingly from South to South. Today, More than 50 per cent of all migrant workers from developing countries are working abroad in other developing countries.

Workers´ remittances are the most immediate economic benefit of international migration. Evidence shows that a significant amount of remittance transfers to developing countries are spent on household consumption. A share of these expenditures is directed to the construction of homes, to healthcare and education. , thereby generating local employment in these critical service sectors. Much of the remaining remittance flows to developing countries are household savings, which can be invested in local and national infrastructure and the productive activities of SMEs, often through the direct involvement of home country governments, local communities and diaspora associations. These funds can significantly leverage national financing for development.

Since the mid-1990s, remittances to developing countries have been growing faster than official development assistance (ODA), and are estimated to reach over US$ 325 billion in 2010, slightly higher than their peak prior to the economic crisis. Whilst larger than ODA flows, remittances still remain small compared to FDI flows. However, from the start of the recent crisis, remittance inflows have proved to be more resilient than FDI. Although FDI is not expected to return to its pre-crisis level until the world economy has fully re-established itself, global remittance flows have already recovered from a much smaller decline, and are expected to reach US$ 374 billion in 2012. Facilitating the movement of people, therefore, offers a further development policy tool for countries in the South. However, remittances do not replace ODA and FDI. Economic growth with domestic job creation remains the paramount priority.

In thinking about how to make migration successful as a source of finance (as well as knowledge, innovation and culture), we need to better identify and understand the links between migration, remittances and development. Ultimately, such understanding can help shape a better policy framework that can support increased remittance flows to developing countries and direct them towards investment in productive sectors through, for example, the expansion of migrants´ access to financial services.

Ladies and gentlemen,

In 2009, remittances accounted for about 2 per cent of the gross domestic product (GDP) of developing countries. In the LDCs, this contribution is even greater: in 2009, remittances accounted for more than 8% of GDP in eight LDCs, including Lesotho, Nepal, Samoa, Haiti and Bangladesh. Although the effects across countries are varied, remittances have reduced the incidence and depth of poverty at the household level in many developing countries. A recent UNCTAD study found that in countries where remittances make up 5 per cent or more of GDP, on average a 10 per cent rise in remittances leads to a reduction of 3.9 per cent in the poverty headcount ratio and to approximately a 3-3.5 per cent reduction in the poverty gap.

But the benefits of migration extend beyond remittances: migrants and diasporas contribute to knowledge and skill transfer, entrepreneurship and productive capacity building. Recent examples include the IT sector in India and the manufacturing sector in China where migrants and diasporas have made direct investments, transferred knowledge and technology and distributed their products and services to foreign markets through their established networks.

Moreover, steady flows of remittances and other funds, such as deposits from migrants, can stabilize national balance of payments. Their contribution to foreign exchange earnings can spur economic growth, by improving countries´ creditworthiness, and expand their access to global capital markets. Additionally, when countries increase the consumption of imported goods including raw materials and capital goods they also support an increase of GDP through multiplier effects.

In November, the G20 recognised the resilience of remittances and discussed how to facilitate international flows and enhance their efficiency, both of which topics will be discussed at this meeting. To reduce the global average cost of remittance transfers, the World Bank, regional development banks and other relevant organizations, including the Global Remittances Working Group, were asked by the G20 leaders to work with individual G20 and non-G20 members to make further progress in the implementation of the General Principles for International Remittance Services and related international initiatives.

One challenge that this group should address concerns transaction costs for remittances, which remain too high, despite the fall in the average cost of repatriating remittances to 8.7% in 2010. There is still a lack of safe, reliable and accessible transfer systems for remittances, and affordability is a serious impediment to enhancing remittance flows. For some countries, excessive margins are charged, and transfer fees are much higher than the global average. This is one of the main reasons why many migrants continue to use informal transfer channels.

Better policies, incentives and mechanisms are needed to encourage formal transfers, which would also generate a market for intermediary services in the nascent banking sector of many developing countries and allow governments to monitor the true magnitude and impact of remittance inflows on their economies and develop policies to channel remittances into productive activities.

It is clear that advances in the financial services sector and regulatory frameworks play a key role in facilitating remittance flows and enhancing their efficient use. Greater financial regulation in both origin and destination countries should provide an enabling environment for facilitating remittance flows, such as those through e-banking or mobile phones, as well as encourage more competition and transparency in the money transfer market. In receiving countries, such as Ecuador, banks can provide financial services to remittance recipients with a view to facilitating remittance flows and enhancing the use of remittances for investment.

Looking at migration in general, several barriers - and specifically the temporary movement of natural persons for the supply of services under Mode 4 of the GATS - impede temporary and circular migration and limit growth in remittance flows. Bilateral, regional and multilateral trade agreements partially address these barriers but, in the WTO, existing Mode 4 commitments have not produced commercially meaningful results for developing countries.

This imbalance is supposed to be corrected by the DDA but, to date, offers in Mode 4 remain limited. Meaningful commitments could bring important development gains for developing countries. For example, it is estimated that a 3 per cent increase in high-income OECD countries´ quotas for workers from developing countries could generate welfare gains of over $150 billion. A great part of those gains could be derived through remittances. A coherent approach to trade liberalization should not only liberalize the movement of goods and capital, but also provide real market access in Mode 4.

Ladies and gentlemen,

Migration can be a win-win development opportunity. However, managing cross-border issues, such as migration, requires greater policy and institutional coherence and coordination at national, bilateral, regional and multilateral levels.

A comprehensive approach should seek to, inter alia:

  1. set clear and aligned policy goals and priorities;

  2. establish and strengthen coherent regulations and institutions;

  3. assess labour market needs in destination countries;

  4. provide pre-departure and return reintegration training of migrants; and

  5. facilitate remittance flows for development and rights-based managed migration.

I hope that our discussions over the next two days can contribute towards that end, in particular by feeding into wider debates at the international level on migration and remittances.

Thank you for your attention.


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