UN body sings ‘diaspora investment’ tune


MANILA—LATE as they are, the United Nations Conference on Trade and Development is singing a familiar tune: that remittances could be a development tool.

Calling it “diaspora investment,” the Unctad has urged countries largely benefiting from the inflow of currency to tap its potential other than further pushing consumption.

The Unctad noted the urgency of this move in its report that came a week before the World Bank released its notes on rising migrant remittances to East Asian countries.

Likewise, the Unctad report comes at a time when the Philippines posted a double-digit increase in the percentage of money sent by some 8.5 million Filipino workers, hitting P9.9 billion in the first nine months of the year.

The Bangko Sentral ng Pilipinas was quoted as saying it expects total money sent through formal channels by these Filipinos, composing a quarter of the domestic labor force, to hit above US$11 billion –P 550 billion at US$1=P50, or more than half of the House-approved P1.05 trillion 2006 national budget– by year’s end.

The Unctad report underscored the “direct positive impact (of remittances) on poverty alleviation”.

Still, the Trade and Development Report 2006 said that remittances’ positive effects on the overall economy of a remittance-receiving nation such as the Philippines depend on a lot of factors. These include the pattern of use by the households receiving the money, the size of the money sent over time, and the efficiency of domestic financial intermediation and national monetary conditions.

For these effects to be felt, the Unctad urged the need for a proper channeling of migrants’ money.

The UN body cited one way is using remittances to fund constraints in the balance of payments as experienced by developing economies like the Philippines.

The additional foreign exchange flows, Unctad said, can be used to buy imported inputs for domestic production.

“However, this effect depends on how the receiving households use their remittance income. (If remittance) is spent directly on imported consumer goods, the positive balance-of-payments effect will be offset,” Unctad’s report cited.

The balance of payments is a record of all the transactions of a country with the rest of the world.

A negative balance of payments means that more money is flowing out of the country than coming in.


UNCTAD’S view is echoed in the World Bank report that cited the “[r]apid growth of remittances and transfers from overseas workers, amounting to about 14 percent of GDP in 2005, has converted large trade deficits into modest current account surpluses, and helped to boost consumption and reduce its volatility.”

“The strong performance of remittances and exports has helped to insulate the current account from higher imported oil prices, allowing the central bank to increase gross reserves by $3.1 billion in 2006 through September, notwithstanding the prior market correction,” the Bank said in its East Asia Update released November 13.

But more than consumption and a temporary buffer to slide in the country’s productivity and trade, the Unctad said such money inflow could be harnessed for capital formation.

“As migrants’ remittances, which are private income, are expected to grow further for many years to come, consideration might be given to providing incentives for using such inflows for capital formation… (or) to channel these transfers to the largest extend possible into productive uses,” the report said.

In short, the Unctad is proposing for a possible “diaspora investment” which it said can play an important role in the development process.

Such theory had been first trumpeted by philanthropy organizations, which introduced the term “diaspora philanthropy” in the late ’90’s when remittances were overtaking official development assistance to developing and labor-sending countries.

The term has been defined as the process by which migrants or immigrants abroad set aside a certain portion of their remittances to fund development projects in their country of origin.

As a result, migrants’ transnational philanthropy builds transnational relations that link together origin and settlement societies, according to the paper titled “Within Reach, Philippine Nonprofit Organizations’ Approaches in Tapping Overseas Filipinos for Philanthropy: Four Cases.”

The Unctad agrees to such theory.

“The contribution to growth and development of the receiving economy would be greater the larger the proportion of remittance inflows that can be channeled into investment in physical and human capital by the receiving individuals or indirectly through financial intermediation in the recipient country,” Unctad’s report said.


UNCTAD’S proposal stems from the view that labor migration would remain as more brisk world trade and advanced technology allowing faster people connectivity fail to push up a greater number out of poverty.

Current trends point out that labor migration would intensify further as the widening gap in standards of living between developing countries and developed countries would persist in the years to come, the Unctad report noted.

Echoing a previous World Bank view, the Unctad said remittances should be considered as only a temporary source of additional foreign exchange, which can be harnessed further in order to help solve what have been causing emigration in the first place.

“That is, they (migrant workers) can push domestic growth and development and generate increasingly productive domestic employment,” the report said adding that governments should start thinking of integrating migration and migrants’ remittances into a broader development strategy.

Some of Unctad’s proposals reiterate those already forwarded by multilateral agencies like the World Bank and the Asian Development Bank and other migrant non-profit groups.

The UN body also reaffirmed the reduction of costs in the transfer of money while making the system more efficient as it is done through banks, debit cards, and mobile phones.

Like what some analysts tapped by the World Bank said, this could be done if governments of labor-sending countries give incentives to returning migrant workers.

The Unctad also repeated views that labor-sending countries could address the outflow of workers with highly-specialized skills by striking agreements with labor-receiving countries to “multilateralize” immigration rules.

International agencies have focused on the power of remittances when both volume and value increased in proportion to more stable channels of sending and receiving money and when declines were seen in the flow of ODA, foreign direct investment inflows, and other private capital inflows.


IN the case of the the Philippines, last year’s $11 billion remittances even exceeded ODA, FDIs, and other private capital inflows.

According to the Philippine Central Bank’s preliminary figures, direct investments have only reached $636 million for this year’s first six months. On the other hand, portfolio investments were even in the negative territory at -$1.1 billion during the same period.

ODA, on the other hand, was at $14.13 billion, but these were given between 1992 to 1999. Meanwhile, remittances for the same period were at $5.95 billion, or an average of $1 billion a month.

Remittances also do not carry any other liabilities such as interest payments in case of the debt instruments, conditionality in the case of official grants, or profit remittances to their base country in the case of FDIs.

But the Unctad warned of repercussions negatively affecting migrant workers if current environment persists.

“Weak bargaining and regulatory capabilities on the part of the host-country governments can result in an unequal distribution of benefits or an abuse of market power by transnational corporation by crowding out domestic investment,” it said.

However, such strategy of harnessing migrants’ remittances is better said than done.

The Unctad itself admitted that some governments have little control over the use of their money since, after all, those are personal income.

“This makes it difficult to integrate their use into a strategy for the financing for development,” the Unctad said.

OFW Journalism Consortium