Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited
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- Financial Market
- Fiscal Policy
Lamenting high migrant remittances into Nigeria 08 Apr 2019
Last December, the World Bank announced the estimated figures for global migrant remittances in 2018. Nigeria received $25.08 billion. If the quite substantial financial flow into the country was celebrated, the euphoria was spontaneous, contained and short-lived. The data could not serve the counterpropaganda predilections of the two major parties, although it was released during the campaign for the 2019 general elections in the country.
Remittances data is a lagging indicator. This means the money Nigerians in diaspora sent to their relatives in the country last year had been received and spent by the time the remittances report was released. Despite the humongous sum, over three million Nigerians fell into extreme poverty in 2018, according to the projections of The Brookings Institution.
The inflow was hardly noteworthy, even. It didn't derive from a national strategy. Humongous inward remittances flow simply happens to Nigeria. If it is viewed as a product of unfavourable migration from the country, there is no attempt to curb the daily outflows of skilled professionals and able-bodied unskilled labour from the country.
Whereas Nigerians are generally concerned about brain drain, remittances appear to ameliorate the problem and are not viewed as preventing appropriate policy solutions. Further obfuscating the issue, the World Bank hypes remittances as having “development impacts” in low- and middle-income countries (LMICs). The Bank has been working to reduce the cost of sending remittances around the world. According to the Bank's Migration and Development Brief, the global average cost was 6.9% to send $200 in Q3, 2018.
However, remittances constitute a significant part of global finance and the GDP of a number of countries. Over $689 billion was sent, worldwide, in 2018. In some countries and territories, remittances accounted for as high as over 30% of GDP. It was 10.8% of GDP in Egypt; 14.8% in Lesotho; 13.1% in Liberia; and 13.6% in Senegal.
Inward remittances accounted for 6.1% of Nigeria's GDP in 2018. In the last ten years, remittances to the country averaged $20.8 billion annually. This compares favourably to the average dollar value of the annual federal budgets over the same period. Still, remittances account for the second-highest source of foreign exchange for Nigeria after the proceeds from crude oil export, and far exceed combined flows from foreign direct investment and foreign aid for the country.
But high inward remittances, relative to GDP, are a loser's trophy. Sub-Saharan Africa, which is the least developed region of the world, has the highest number of countries among the world's territories with the highest remittances-to-GDP ratios. But in the order of magnitude, the countries where inward remittances constituted the biggest share of the economy in 2018 were Tonga, Kyrgyz Republic, Haiti, Gambia, Lesotho, Senegal and Liberia.
Not ironically, the countries with the highest outward remittances were the advanced countries and the transition economies of the Gulf countries. In the order of magnitude, these were the United States, United Arab Emirates, Saudi Arabia, Switzerland and Germany. These, and the other countries ranking just below them, are the winners in global migration from which inward remittances are derived.
Countries contributing their skilled manpower and unskilled labour force to other countries derive just fractional “compensation” as remittances, compared to the productivity of labour in the host countries of the migrants. Since pre-industrial age, labour has always received only a fraction of its productivity in wages. The labour-wage gap has increased in the advanced countries in Europe and North America in the last five decades. Wage increases have lagged productivity growth in these regions.
These countries lament the inequality that this trend has caused in their societies and its impacts on the welfare of households. But for the LMICs contributing to the labour pools in the advanced countries, the stagnation of wages has meant a wider gap between potential and actual remittances. In which case, both the migrant workers and their countries of origin are short-changed. This is not an unimportant observation, considering that many of the migrants were trained and supported by public funds until they moved abroad.
Whereas U.S. President Donald Trump has continued to provide a megaphone for the anti-immigrants, his intent is actually undisguised. He wants to maximise the benefits of migration for his country. He wants Mexico, a euphemism for the developing countries, to send only their “best” people to the United States.
The recent policy of the Japanese government on migration is also zero-sum. Although it welcomes low-skill migrant workers into the country, the policy also shows the limited benefits of such migration. The blue-collar workers are offered permits for just five years and are not allowed to bring their family members. The migrants are restricted to work in 14 specific sectors, including farming, construction, hospitality and ship-building. This limits the scope for social integration, knowledge development and upward income mobility by the migrants.
Nowhere is the negative net impacts of emigration of skilled workers worst felt than perhaps Nigeria's healthcare. Doctors who have received highly subsidised medical education in the country have continued to leave in droves. As Professor Njideka Okubadejo, a physician neurologist at the College of Medicine, University of Lagos, told me a few years ago, only two out of her over 50 classmates in medical school had remained in the country. The rest were working in foreign countries to keep their healthcare functioning and globally competitive. But Nigeria's healthcare system is bedevilled by acute manpower shortages and it has all but collapsed.
There is no intention here to dismiss remittances with impatient hand gesture. Remittances support financing for small businesses, household consumption and access to education and healthcare. This does help alleviate existing poverty and could help the beneficiaries escape poverty in the future. But for the country as a whole, this will not help very much.
Complex as addressing the negative net impacts of emigration might be, there is a policy wand that one would like to wave. Nigeria – and other LMICs wanting real progress – should limit their remittances as a percentage of GDP to less than 1%. This will bring the countries into the company of the United States, UK, India, UAE, Germany, Brazil and China.
This does not necessarily mean Nigeria will start receiving lower remittances than it got in 2018. India ($79.4 billion) and China ($67.4 billion) received the highest flows of inward remittances last year. Yet they are among the above-named group of countries Nigeria needs to join. These countries are able to retain local talents by developing their local economies, whether or not they are contributing significant numbers to the pool of global migrant workers.