The Sunday News
Butler Tambo
THE topic of diaspora remittances has become “hot” as evidenced by the cover issue of The Economist magazine in November 2011 that screamed, “The Magic of Diasporas — how migrant business networks are changing the world”. In my previous two instalments looking at Foreign Direct Investment and Diaspora Remittances to Zimbabwe, I have made a case for the Government to maximise on policies that target the latter form of funds into the country as it is more sustainable and has little or no restrictions tied to it.
This article will look at case studies of countries and other measures that can be replicated in Zimbabwe for the country to maximise diaspora remittances not just as “school fees money, medical bills monies, money for groceries” but for these funds to be harnessed as they are put together for a bigger cause like sustainable economic development and not merely domestic consumption or personal housing projects funds.
Raising financial resources from the diaspora and using them to achieve targeted development objectives, however, would require more than simple projection of figures and a hope that nationalistic sentiments alone would entice diaspora resources.
The Ecuadorian Experience
The 1990s economic crisis in Ecuador, which peaked in 1999, and the subsequent dollarisation in early 2000, prompted an unprecedented wave of emigration by an increasingly impoverished middle class in search of greener pastures. The destinations of choice were Europe (mainly Spain and to a lesser extent, Italy) and USA. By 2007 an estimated 2.5million Ecuadorians were living abroad, a figure that represented approximately 20 percent of the population.
Remittances which had totalled US$200 million (1 percent of GDP) in 1993 hit US$3,1 billion by 2006 (7,8 percent of GDP).
According to Central Bank of Ecuador figures, remittances had become the second most important source of foreign exchange after petroleum exports. Ecuador achieved a current account surplus by 2006 because of remittances, despite the contraction in other traditional export contributions.
To encourage emigrants to use formal banking channels, mobilise capital for credit creation, and improve data collection on remittances and the country’s international credit ratings, the Government announced in March 2009, that it would “open a bank designed to collect and distribute remittances exclusively”. In addition, remittance services would be offered “free of charge” to recipients and credit histories would be maintained for any Ecuadorians living abroad which they could use should they ever return.
The government is also working on a “virtual consulate” project which provides Ecuadorian emigrants with secure access to a database where they can download legal documents (eg, title deeds, birth certificates) from authorised centres in various parts of the world. Modelled along the same lines as the Mexican “Matricula Consular”, the access card issued to each emigrant can also be used for both identification and debit/credit card purposes anywhere in the world.
Furthermore, in 2006 the government created an Office of Migration to oversee migration policy and promised to enhance the political representation of emigrants by setting aside three seats in Congress for this purpose. Legislation was passed in 2005 to allow emigrants to participate in Presidential elections, which they have done since the 2006 elections. This can easily be replicated by Zimbabwe as well and all that it must do is to give voting rights to its diaspora population and acknowledge them politically as well as its citizens and give them a source of belonging.
The Mexican Experience
Mexico is the second-largest recipient of remittances in the world and its diaspora is largely concentrated in one country, the USA. In 2001, the government established the Presidential Office for Mexicans Abroad that was designed to strengthen ties between Mexican emigrants and their communities of origin. Legislative changes have since been made to allow Mexicans living abroad to maintain dual nationality, albeit without voting rights. The government strategy is two-fold: to expand the opportunities for Mexicans abroad and to facilitate remittances. Zimbabwe can also offer dual citizenship to its vast diaspora population and this would give the population a sense of belonging and enhanced patriotism.
The Matricula Consular is issued by the Mexican government to its citizens living outside Mexico as an identity document. The 2004 acceptance of the Matricula Consular as a valid ID by the USA has enabled illegal Mexican immigrants to open banking accounts and get drivers’ licences in various cities and US states. This has inturn facilitated the intermediation of remittances through the formal banking system.
Furthermore, Mexico has fostered engagement with the diaspora through “home town associations.” This has been made possible because residents of the same town or village tend to migrate to the same locality in the USA. Home Town Associations have served the dual purpose of giving social support to migrants and economic support to their town or village of origin. The Mexican Home Town Associations send home various kinds of support that include charitable contributions, infrastructure improvements, funding for human development projects and capital investment in income generating activities.
The experience of China
China endeavours to attract direct investment and open trade opportunities using its overseas Chinese communities. Overseas Chinese communities, estimated to total more than 35million people, are found in virtually every country in the world. The government has made efforts to maintain a sense of identity among overseas communities and their descendants.
It is estimated that about half of the US$48billion in FDI that flowed into China during 2002 originated from the Chinese diaspora. The government has encouraged diaspora engagement in FDI and trade, as well as philanthropic contributions and other activities, through preferential policies and stimulating a sense of belonging to China.
Indian Experiences
In the case of India, reaching out to its diaspora in times of need has had significant benefits. India only issues bonds to Non-Residential Indians (NRI). Issuing these bonds exclusively to Indians gives them incentives to invest in an instrument with limited availability.
Exclusivity can be attributed to the fact that these bonds pay back in domestic denominated currency rather than a hard currency such as the US dollar. It is believed that the Indians are more inclined to hold local currency as they still hold assets within the country.
This belief is supported by the high level of remittances still pouring into India. As of 2017, a reported $69 billion inflow of remittances entered India. Rather than seeking funding through foreign debt markets, India has avoided the restrictions and pressures for societal and structural reform.
When India conducted nuclear tests in 1998, it was subjected to economic sanctions by several countries. To counter the impact of these sanctions, the government launched a large sale of five-year bonds named Resurgent India Bonds that were guaranteed by the State Bank of India and available only to non-resident Indians. While the government counted on patriotism among the Indian diaspora, significant benefits were added to make the bond sale attractive such as an interest rate that was two percent higher in dollar terms than that prevailing on the US bond market, the option to redeem in either US dollars or German marks, and exemption from Indian taxes. According to the Migration Policy Institute (MPI) this bond sale was a major success, raising £2,3 billion in just over two weeks. Two years later in 2000 another bond, the India Millennium Deposits was issued, and over £3 billion was raised.
Israeli Experiences
In 1951, the Development Corporation of Israel (DCI) implemented a programme seeking aid from its diaspora with the objective of raising foreign exchange for the State. The annual issuances of these bonds are a stable source of overseas borrowing while also allowing Israel to maintain ties to its expatriates.
While Israel has sought aid to build infrastructure rather than assistance during financial crisis, investments have jumped steeply during times of need. Annual sales of DCI bonds increased about $150 million during the 1973 Yom Kippur War from the prior year and by $500million during the 2001 USA 9/11 terrorist attacks.
On the other hand, Israel issued its bonds for development purposes and has re-issued them on an annual basis since 1951. Tapping the patriotic nature of expatriates allows countries to efficiently raise capital for necessary projects such as infrastructure or crisis relief to name a few. However, many factors must be apparent for these bonds to be successful including financial stability, international support, widely-recognised credit ratings, the structure of the bond itself, and the success of the individual migrants. A combination of these factors plays a large role in investor confidence in one’s home country and it is up to policy makers in Zimbabwe to be flexible enough (on voting rights for its diaspora population, banking rules, company registrations, housing and mortgage registrations, dual citizenship etc) for the economy to benefit from this diaspora largesse.
– Butler Tambo is a Policy Analyst who can be contacted on [email protected]
