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03.12.2005 Feature Article

Mojo Odyssey: Diasporean Remittances and Poverty Alleviation.

Mojo Odyssey: Diasporean Remittances and Poverty Alleviation.
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“Come, my friends, 'Tis not too late to seek a newer world…. Though much is taken, much abides; and though We are not now that strength which in the old days Moved earth and heaven; that which we are, we are, One equal-temper of heroic hearts, Made weak by time and fate, but strong in will To strive, to seek, to find, and not to yield.” These are immortal words from Alfred Lord Tennyson in “Ulysses” which recapitulate Ghana's search for middle class status by the year 2020.

Poverty appears to be endemic, nay, seemingly entrenched in Ghana. Without the need for clairvoyance, it is obvious there is need for a paradigm shift, if this Middle Class Status is to be attainable by the set date. Majority of Ghanaians rely on remittances from Diasporean Ghanaians strictly for consumption purposes. Diasporean Ghanaians in turn generally do not seek for the building of economic empowerment blocs both for themselves (retirement or investment), and their relatives (wealth generation).

There are two main forms of Diasporean expenditure that can be made: consumption and investment expenditures. Although consumption expenditure is essential for basic survival, it is inadequate as a means of accelerating economic development. Investment expenditure is more crucial in generating capital, and hence initiating wealth-generating activities. In 2004, Dr. Addison presented his paper on Diasporean remittances. According to Dr. Addison, Director of Research, Bank of Ghana, Ghanaians in the Diaspora remit money back home for four main reasons: altruistic, self-interest, co-insurance, and loan repayment.

Let's take each reason in turn, in the words of Dr. Addison himself:

“The Altruistic Motive The altruism or liveliho! ods school of thought considers remitting to be an obligation to the household. Remittances are sent out of affection and responsibility towards the family. It has been argued in the poverty literature that the major reason why people migrate to other countries is due to poverty. According to the altruistic model, sending remittances yields a satisfaction to the migrant out of a concern for the welfare of his family

Self- Interest Motive An opposite motivation is to assume that the migrant is mainly motivated by an economic and financial self-interest, when sending remittances to the home country. The argument behind this theory is t! hat, at every point in time, the successful migrant in the foreign country saves. Then, the need arises on how (in which assets) and where (in which country) to accumulate wealth. An obvious place to invest, at least part of his assets, is in the home country by buying property, land, financial assets, and so on. These assets may earn a higher rate of return than assets in the host country although their risk profile can also be greater. In turn, the family can administer, during the emigration period, those assets for the migrant, thus acting as a trusted agent.

Implicit Family Contract I: Loan Repayment. The literature has also considered the discussion on the remittance process from the family perspective rather than the individual. In other words, Economic theory has developed explanations of the remittances process that take the family–rather than the individual– as the main unit of analysis. According to the theory, families tend to develop an implicit contract among those who choose to live abroad, the migrant, and those who stay at home. The implicit contract has an inter-temporal dimension, which could last for various years or even decades, as a time horizon. The contract combines elements of investment and repayment. In the loan repayment theory the family invest in the education of the migrant and usually finances the costs of migrating (travel and subsistence costs in the host country). This is the loan (investment) element of the theory. The repayment part comes after the migrant settles in the foreign country and his income profile starts rising over time and is in a condition to start repaying the loan (principal and interests) back to the family in the form of remittances. This implicitly implies that the family invests in a higher yield “asset” (the migrant) who earns a higher income level in the foreign country than other family members that live and work at home. The amount to be remitted will however, depend among other things, on the income profile of the migrant.

Implicit Family Contract II: Co-Insurance A variant of the theory of remittances as an implicit family contract between the migrant and those at home relies on the notion of risk diversification. Assuming that economic risks between the sending and foreign country are! not positively correlated then it becomes a convenient strategy for the family as a whole, to send some of its members abroad (often the most educated) to diversify economic risks. The migrant, then, can help to support his family in bad times at home. Conversely, for the migrant, having a family in the home country is insurance as bad times can also occur in the foreign country. In this model, migration becomes a co-insurance strategy with remittances playing the role of an insurance claim. As in any contract there is a potential problem of enforcement (e.g. ensuring that the terms of the contract, are respected by the parties). However, we can expect enforcement to be simpler, in principle, due to the fact that these are implicit family contracts, helped by considerations of family trust and altruism (a feature often absent in legally sanctioned contracts).”

Dr. Addison's paper presents Balance of Payments (BOP) estimates of private unrequited transfers (remittances) for Ghana. It shows that the level of private unrequited transfers increased significantly from US$201.9 million in 1990 to US$1,017.2 million in 2003. Total transfers have increased from just over US$410 million to US$1,408.4 million over the same period reflecting mainly the increase in private unrequited transfers. The study also found that private transfers are much bigger and more stable than Official Development Assistance (ODA) and Foreign Direct Investment (FDI) over the period 1990 - 2003. Also remittances have been increasing more than proportionately compared to GDP and exports earnings.

This ! finding is very significant: remittances from Ghanaians living abroad are larger and more stable than even loans and grants from the governments of foreign countries, and also larger and more stable than even foreign direct investment (FDI). There is a large, untapped potential in these remittances. The problem is that these remittances are dispersed in a very scattershot manner, and there is no consistent direction as to where they are targeted. These remittances go mainly to private households, unlike ODA and FDI which are geared towards specific projects that create wealth. So even though remittances are lauded as valuable for survival, they lack the direct impact of targeted transfers. Hence, the majority of remittances is used for consumption purposes, while investment in business or traditional productive uses and in savings is small.

This need not be the case. There are several things that the NPP government could do to tap into the potential of all those Ghanaians abroad. In countries that have, like Ghana does, high rates of emigration, such as the Philippines, Bangladesh, and India, the governments of those countries have instigated domestic policies that actively recruit and harness the potential of their citizens abroad. These domestic policies are not especially difficult or expensive to design, and there isn't the need to even travel abroad to convince others to invest in the programs initiated by these policies. A good product needs no selle! r. After all, if something is good, there is no need to force/convince people of this; in fact, they will steal it from you.

In a 2005 case study of Bangladesh, by de Bruyn, and Kuddus, of the International Organization for Migration (IOM), the report found that remittances had a significant impact on economic development because the Bangladesh government took an active role in guiding their impact on the economy. In the first place, remittances are seen as important financial means for investment in human capital, housing and land purchase. And secondly, individual transfers by migrants were made in order to save or invest in their home country. Migrants remit money directly to Bangladesh in order to save or to invest. The government and banks have created a number of bonds and special saving accounts aimed at migrants.

The paper discusses four initiatives and policies taken by Bangladesh governmental and other bodies (such as private banks) involving remittances. These are: encouraging labor migration to increase the level of remittances; encouraging formalized methods of remitting; tapping into non-resident remittances by facilitating investment; and influencing the utilization of remittances. Because of the concerns about brain drain, Ghana does not need to encourage further migration simply to increase the level of remittances. Ra! ther, it is an issue of quality, not quantity. But, the other three policy initiatives on remittances would serve Ghana very well.

What is the NPP government's position on migration and remittances? Is it satisfied with the status quo? This article argues that we can do better than this. With the same fervor the government is using to push for ROPAB (Representation for People Abroad Bill), for which some Ghanaians abroad, mostly of NPP persuasion, recently traveled to Ghana to meet with the Vice President of Ghana and to lobby for, why can't this same inspiration design investment packages targeted towards the Diaspora, for instance, Government Education Bonds for Ghanaians abroad, to be specifically used for the purposes of investing in education?

! The NPP government is not doing enough to harness the resources of Ghanaians abroad who have already demonstrated that they are ready and willing to invest. It prefers to spend its time engaging in political stunts like ROPAB, with the intention of consolidating their grasp on all the levers of power. As if Ghana does not have enough on her plate, the government wants to incur the extra expense of executing elections abroad, wherever any Ghanaian may be found. Why don't they pursue these Diasporean Ghanaians for investment, or create a more conducive investment environment?

Take the case of Ashesi University, founded by Swarthmore graduate and Microsoft code writer, Patrick Awuah. This Diasp! orean Ghanaian left a lucrative career with Microsoft to found Ghana's first Western-style liberal arts college that specializes in business administration and computer programming. This project involves the three major determinants of economic growth – investment in human capital (education), housing, and land purchase. If more Diasporeans were to emulate Mr. Awuah, rather than urging for ROPAB, which has divided Ghana along political lines, indeed Ghana would be better served. Because pure politics divides, while appealing to economic self interest would unite the country, this is a clear case of misplaced priorities.

The point is that, although there were no special incentives th! at motivated Mr. Awuah and others like him, to invest so significantly in their country, save for a feeling of patriotism and concern for Ghana's future, not everyone acts so selflessly. Most people need strong incentives to invest, and the government needs to provide or encourage these incentives by appealing to people's self-interest.

The prevailing perception of corruption, in many of Ghana's bureaucracies and workplaces also deters investors. Despite assurances to the contrary, many Diasporeans find themselves discouraged, defrauded or denied their dream of investing in their home country because of Ghana's casual attitude to corruption. 2001 was supposed to mark the era of a ! zero tolerance to corruption. 2005 sees Ghana actually moving up in the ranks of most corrupt countries. If this so-called zero tolerance has actually worsened the situation, it can then directly be linked up with Diasporeans' low participation rate in investment activities. If they must invest, they need to be physically present, a proposition not attuned to the needs of many Ghanaians abroad. Why does the NPP government not see this?

This article has argued for a more active and transparent role of government in creating incentives for Ghanaians abroad to invest in their country. The consumption-based remittances are not adequate to propel Ghana into middle-class status. Diasporeans should not be complacent in boasting about ! how much they are helping the country; when in actual fact, they are only helping themselves. They would help Ghana more if the government would create conditions for remittances to move from the consumption phase into the next phase of investment. For instance, Dr. Addison found several policy opportunities, similar to those used in Bangladesh, which Ghana could implement, to encourage savings and investment of remittances in productive activities. These policies included: Repatriable foreign currency accounts; Foreign currency denominated (remittances) bonds; and Savings certificates denominated in foreign currency. Why hasn't the government worked to bring these ideas into fruition? There is a direct link between remittances and poverty alleviation, which the NPP government does n! ot seem to grasp beyond the mere superficial level of consumption remittances.

Like Tennyson said in “Ulysses” quoted above, it is never too late to make a new beginning. Many hardworking folks have striven, and sought, and yet the journey ahead seems long and unrelenting. It is time to re-evaluate our priorities, and be unyielding in our will to succeed.

The MOJO Odyssey continues. Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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