Review of Global Evidence John Page and Sonia Plaza The World Bank

Improving the attractiveness of receiving countries to senders

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Improving the attractiveness of receiving countries to senders

China, the Philippines, India, Mexico, Eritrea and Taiwan (China) provide examples of how governments use different approaches to intensify their financial ties with overseas communities. For example, the government of the Peoples Republic of China has offered investment packages to overseas Chinese. (Hsing 2003) Since 2000, Mexico has implemented different measures to strengthen ties between Mexican emigrants and their communities of origin. These measures include: 1) the establishing of the Presidential Office for Mexicans Abroad; 2) legislative changes that allow Mexicans living abroad to hold US dollar accounts in Mexico and to maintain a dual nationality; and 3) issuing the “Matricula Consular” (a form of ID that allows undocumented immigrants to open a bank account). Some countries issue ID cards to expedite services in the country of origin for their migrants. Tunisia for example offers its migrant workers to Europe access to a “carte consulaire” which permits access to special customs clearance, reduced airfares and foreign currency bank accounts.

Bonds targeted to nationals residing abroad can open opportunities for investment and facilitate the return of money from abroad. Many countries have successfully issued premium bonds to their diaspora (China, Bangladesh, Eritrea, India, Israel, Lebanon, Pakistan and the Philippines, see PRIO, 2005). Such remittances may have been a major factor behind the doubling of remittance flows to India between 2002 and 2003. Investments in the form of non-resident bonds are not strictly remittances, in that they do not represent household to household transactions. However they can increase the volume of development finance provided by a given migrant community. There is also some evidence to suggest that even when these bonds are denominated in foreign currency, after maturity a part of the investment is likely to remain in the country. (World Bank 2005).
El Salvador, Mexico, Turkey and Peru have used their remittances to tap into international financial markets through securitization. In the case of Latin America, the originator of the securitization has been a local bank. However, this experience still can not be applied to other developing countries because the majority of local banks do not have investment grade ratings.
One important vehicle for attracting remittances is for governments to allow their domestic banks to open branches in major sending countries. This has been a feature of the financial market in the Middle East and North Africa for at least two decades. More recently governments in Armenia, Haiti, and India have allowed their domestic financial institutions (including some microfinance institutions) to open branches in overseas locations to provide services to their diaspora. These domestic banks bring trust, access to less served areas in the receiving country, and offer remittance services at competitive prices.
Lack of legal status in the host country limits the ability of undocumented migrants to make use of the formal financial system. Most sending countries require legal documentation for any bank transactions. A number of countries, most notably Mexico have attempted to address this by means of bilateral agreements with the host country to create instruments of legal identity, recognized in the host country regardless of migration status. The special arrangement for Mexicans in the US to open a bank account -- the “matricula consular” -- has been adapted and implemented by Guatemala, and other Latin American governments are discussing similar arrangements for their nationals in the US.
Another policy aimed at leveraging remittances is savings mobilization through social security, housing and microfinance programs. The Philippines for example allows its citizens to enroll or continue their social security coverage while abroad. Workers from the Philippines can also keep contributing to the Pag-IBIG Fund (or Home Development Mutual Fund). Migrant workers can access this fund through diplomatic offices abroad (ADB 2004). Bangladesh has created a number of schemes tailored to investors and non residents such as saving account in foreign currency. The Inter-American Development Bank (IADB) is piloting programs to leverage remittances through enterprise development and capacity building for NGOs and microfinance institutions engaged in service delivery to migrant families. The IABD has also just established a new “Partnership Facility” jointly with the International Fund for Agricultural Development (IFAD). The objective of the initiative is to assist rural Latin American communities that receive remittances to increase the development impact of these resources through programs that promote savings and investments in rural areas.

Influencing how remittances are used

Apart from creating incentives for more remittances to flow through the formal financial system, governments in a number of large labor sending countries have attempted to develop schemes to channel remittances into specific objectives such as public revenues, investment or community development. Given the private to private nature of these transactions, policy interventions have focused either on appropriating some of the private flow, largely without success, or on creating incentives to change individual or household behavior.

Mexico is taking an innovative approach to promoting the role of individual migrants in community development back home. Some Mexican states have initiated projects with migrant communities through a program is called the “Padrino Program”. It is directed towards successful Mexican-American business people who in consultation with local communities can choose to invest in one or more of over 1000 projects identified by the Presidential Office for Mexicans Abroad,. (See Box 3.) Central America and the Caribbean are also piloting interesting approaches to attract targeted investments from their diaspora.

Home Town Associations (HTAs) are generally voluntary associations of migrants to achieve specified social and philanthropic purposes. The derive their name from the fact that in many cases the migrant communities that form them come from the same geographical area. HTAs residing in the US, France and Africa support community development projects in the home country, most often without government support in either the country of origin or of residence. Donations by HTAs are often as much or more than the municipal budget for public works of the municipalities from which the members are drawn, particularly in towns with small populations (Orozco 2003).

A few governments have offered matching grants for remittances from diaspora groups or home-town associations to attract funding for specific community projects. The best-known of these matching schemes is Mexico’s 3-for-1 program, under which the local, state and federal governments all contribute $1 for every $1 of remittances sent to a community for a designated development project. Colombia has an HTA program, where external government funding is used to match migrant group funds for local projects benefiting vulnerable populations (IOM, Bogotá).
Little evaluation of the impact of these programs has been done. Resources have gone primarily to rural areas, where they have increased the supply of essential services (health, education, roads, and electricity). It is difficult to assess whether these investments – and the matching grants -- have gone to the highest priority projects, although proponents argue that HTA involvement ensures that programs are focused on community needs, and that the associations promote increased accountability and transparency of local and national authorities.
Managing migration
There is still debate on the role migration should play in the mix of policies available for development. Although mechanisms for international collective action are in place in goods, services and capital markets, migration is still largely the domain of individual national governments, and there is little consensus among sending and host countries as to whether migration management should be bilateral, regional, or global. There is an urgent need to bring a development perspective to the migration policy debate.
Policies in receiving countries
Populations in developed countries, mainly in the EU, have mixed feelings on the issue of migration. On one hand, there is a felt need for immigrants to help with labor shortages. On the other, the integration of asylum seekers and immigrants is perceived as creating a burden (See Box 4). Host countries have yet to come to grips with the need to develop consistent policy frameworks in which immigrants can effectively and productively utilize their skills, knowledge, and previous work experience.
The use of labor contractors from developed countries to recruit and provide migrant workers to specific employers and in specific employment categories is widespread. These contract labor arrangements are vulnerable to abuse, such as misrepresentation of working conditions or failure to pay wages owed, particularly when the contractor maintains control over workers’ passports (Pritchett 2004). Some governments have made progress in regulating labor contractors, including through requirements that contractors register and publicize means of complaining against their practices. Some have also required contractors to post bonds to cover a portion of wages owed to workers, and by making the employer liable (together with the contractor) for violations of law. Cooperation between origin and destination countries can improve safeguards against abuse.
An area in which greater clarity is needed is the treatment of undocumented migrants. Undocumented migration is both costly and dangerous. Since 1994 an estimated 2,600 undocumented migrants have died crossing the U.S.-Mexico border (Meek 2003) The average price for smuggling an illegal migrant from China to the United States was estimated at $30,000 in 1991. The cost for migrants smuggled into Lithuania arranged from $3,750 to $12,000 in the mid 1990s. (Salt and Stein 1997). One constructive approach to undocumented migrants would be for developed countries to consider extending temporary migration policies to lower-skilled migrants. Most illegal, undocumented migrants are unskilled and lack access to existing programs. The political difficulty of enacting such policies is demonstrated, however, by the failure of the United States and Mexico to agree on such an approach within NAFTA despite high level political commitment by the Bush and Fox administrations.
It appears that there is agreement that efforts to restrict migration of all or some of high skilled workers are not likely to be effective. However, there is still a debate regarding how to compensate sender countries for any losses they might suffer as a result of developed countries’ immigration policies (e.g., highly skilled labor selection). A recent proposal has been made for countries to compensate Caribbean countries of origin by providing subsidies for training health professionals. This approach could increase the supply of health workers in both Caribbean and destination countries (Commonwealth Secretariat 2005).
Policies in sending countries
There is little clarity on how to address a number of problems in labor exporting countries arising from migration. Among these are recovering the public expenditures involved in educating migrants, especially highly skilled migrants, dealing with specific impacts of skilled migration in such areas as education and health, and protecting citizens from exploitation by illegal traffickers, recruitment agencies, and labor contractors.
Dealing with fiscal losses
There is an ongoing discussion by some governments on how they might recover the costs of educating an individual who chooses to leave the country. Most remittance receiving countries do not impose taxes on incoming remittances, although some, such as Belarus do tax financial flows from unrelated parties. Where efforts to collect taxes from immigrants (or even to provide an option for making voluntary contributions), they generally have not been successful. Eritrea for example has experimented with a voluntary contribution scheme with mixed results. A number of countries impose an implicit tax on remittances in the form of financial services taxes Such taxes discourage use of the formal financial system, and exemption programs for migrants raise the possibility of tax evasion.

There has been little cost benefit evaluation of the return to public investments in the higher education of migrants There is substantial evidence to suggest that in fiscally constrained developing countries, greater private financing of tertiary education may be desirable in general, but little to suggest that these policies would be particularly beneficial as a cost recovery measure for migrants alone. Some economies, such as Jordan, have exported skilled and managerial labor for generations under a largely public tertiary educational system, with tangible benefits for the economy. Some approaches to higher private financing of tertiary education, permitting entry of private universities or providing loans for public higher education rather than the usual comprehensive public funding of universities. Under the public loan schemes proposed, students would be required to repay their loans regardless of their country of residence.

Limiting the costs of migration

Among the largest costs to migrants from developing countries are fees paid to recruitment agencies. Asymmetries of information regarding foreign job markets, have allowed these agencies to collect the economic rents from host country limits on immigration (Lucas, 2004a). Once again evidence is fragmentary, but it suggests that migrants into many labor importing countries face substantial informational deficits. A mid-1990s study of migrants from Bangladesh, India, Pakistan, and Sri Lanka to Kuwait, indicated that between 26 and 79 percent obtained jobs from recruitment agents, paying average fees that ranged from approximately twice to 11 times the monthly wage earned by immigrants in Kuwait (Abella 2003).

The majority of developing country programs designed to limit the monosopny power of recruiters have had little success. Although for example, the Philippines is considered to have developed a model program, which limits private recruiter fees to one month of wages paid abroad, in practice, migrants sometimes pay from two to four times monthly wages. (Martin 2005). This is another case in which close cooperation between countries of origin and host countries will be required to deal effectively with the problem.
Mitigating the brain drain
The brain drain remains a primary concern of many labor exporting economies. The emigration of high-skilled workers from developing countries has increased dramatically. The number of highly-educated emigrants from developing countries residing in OECD countries doubled from 1990 to 2000 (Docquier and Rapoport 2004). Policies to take advantage of these trends for development in labor sending countries fall into two broad categories, those intended to provide incentives for highly skilled migrants to return to their countries of origin or policies to mobilize the diaspora resident in high income countries to contribute to development in their homelands without their physical return.

Migration of skilled professionals in education and health

For low income economies, such as those in Africa, high-skilled emigration may have a severe impact on the health and education sectors. Emigration of doctors and nurses may reduce the likelihood of some countries meeting the Millennium Development Goals. The health sector is particularly adversely affected because it requires a balanced mix of skills of for example doctors, nurses, and midwives to be effective (Commander and others 2003). Although comprehensive data are unavailable, estimates suggest that for a number of countries emigration of health professionals constitutes a significant risk to the efficiency of their health sectors. Chanda (2001) estimates that at least 12 percent of the stock of doctors trained in India live in the United Kingdom. Perhaps one-half of the graduates of South African medical schools have emigrated to industrial countries (Pang, Lansing and Haines 2002). According to Stalker (1994), Jamaica had to train five doctors, and Grenada 22, to keep just one. In Ethiopia, more than half of pathology graduates left the country from 1984-96, about half of Pakistan’s medical graduates in any year leave, and of 1200 doctors trained in Zimbabwe during the 1990s only 360 were practicing in the country in 2001. In Ghana, a traditional high skill labor exporter, only about a third of medical graduates remain in the country (Chanda 2001).

This pattern of human capital flight, is particularly harmful to Africa, which is already at risk of failing to meet the majority of health and education MDGs. Nevertheless, it is doubtful that individual countries of origin can have a significant impact on reducing the emigration of highly-skilled workers, given the incentive for emigration. From a global perspective addressing the special needs of low income countries in these areas will require cooperation between labor exporting and labor importing countries. An alternative is for example, self restraint on the part of OECD countries such as the unilateral pledge by the United Kingdom to stop actively recruiting health professionals from developing countries.
Bringing migrants back home
Several governments have adopted programs designed to encourage the return of highly-educated nationals living abroad. Thailand and Ireland, for example, have offered generous research funding and monetary incentives (Pang, Lansing, and Haines 2002). China has offered attractive salary packages, multiple-entry visas and access to foreign exchange. The Philippines has a 20-year history of legislation to support its diaspora, including offering a wider range of real estate investment opportunities to its nationals living abroad than to foreigners.

Among the best known success stories is the Taiwanese (China) government’s Hsinchu Industrial Park initiative, which in 2000 alone attracted more than 5,000 returning scientists. (Saxenian 2001). Chinese migrants in the Silicon Valley helped boost flows of capital, skills, and information between Silicon Valley and the Hsinchu Park in Taiwan. IT entrepreneurs in the Valley benefited from the Chinese migrants’ superior knowledge of investment opportunities and Asian market networks.

International organizations have also developed programs to promote return. The International Organization for Migration’s Return of Qualified African Nationals program successfully attracted more than 2,000 highly skilled persons back to 41 African countries over a period of 16 years (1974-1990). This concept has been expanded into the Migration for Development in Africa program (MIDA), which currently supports a variety of “return options” including investments and temporary returns.

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