Remesas – A source of hope and security?

Remittances are considered to be an essential contribution to food security and an important source of resilience in times of rising prices and high inflation. As a social protective factor, they stabilize the prevailing system and mitigate federal crises. One in seven people worldwide is part of the remittance economy as a sending or receiving party.

It is quiet this morning on the palm-lined beach of the Afro-indigenous Garífuna community of San Juan in Honduras. Three or four canoes are rotting away in the sand, a few skinny dogs are sniffing the seaweed, pelicans are circling above the slowly rolling Caribbean waves. Only one fishing boat can be seen on the horizon. “Fishing is no longer worthwhile,” says Don Wilfredo, a grey-haired man in his mid-sixties. “It is arduous and dangerous to go out to sea – and then you hardly bring home any catch. Of course, the young people lose interest and go away. In the past, they could.” We also fished in the lagoon, but the rich and powerful from the city are now cutting down the mangroves and piling up gravel for their holiday homes. “Then how do the locals live here?” we ask, a small delegation of journalists from Germany. “Almost everyone who is still here,” Don Wilfredo replies, “lives off what their relatives send them from the United States. From the remittances. They use them to buy food in the supermarket and we are losing our traditional diet and our culture.”

The Inter-American Development Bank (BID) has a very different view of migrants' private money transfers (remesas, remittances or remittances) and, otherwise rather unusual for financial institutions, becomes almost a bit pathetic: “Remittances are much more than just a transfer of money from one country to another. They are an emotional and financial link that connects migrant workers with their homeland and their families in the countries of origin. For the recipient families, they are a source of hope and security and have a significant impact on their quality of life.

Private remittances represent an important social protection factor

And the bank does indeed have figures, statistics and the daily experience of millions of people on its side: its latest study for the Central American countries of El Salvador, Guatemala and Honduras, as well as Mexico and the Dominican Republic, shows that private remittances reduce poverty in these countries by two percentage points and the Gini index, which measures inequality, by one percent. 2.2 million people were saved from poverty between 2017 and 2019 by remittances from their emigrated family members, according to the BID. The effect is particularly striking for the small country of El Salvador, where the reduction in poverty was as much as 6 percent. In all five countries, the poorer families are the most affected. In the Central American states, recipients receive an average of 88 percent of their food purchases from remittances, 45 percent of their health expenses, 38 percent of their budgets for services (such as electricity, water, internet) and 9 percent of their education expenses.

What is a cause for concern for Don Wilfredo in Honduras and many indigenous activists around the world, and was criticized in academic circles at the beginning of the 2000s as problematic because it did not bring about structural change, now seems to be almost undisputed on the international stage as a significant contribution to food security and an important source of resilience in times of rising prices and high inflation. During the COVID pandemic, it has become particularly clear that private remittances generally remain stable and even increase in times of crisis. According to BID, they represent an important social protection factor that is much more effective than the social systems of the countries concerned and helps to cushion risks such as job losses or the consequences of climate crises and environmental disasters.

The United Nations International Fund for Agricultural Development (IFAD) also emphasizes the positive aspects of remittances. In a statement on June 16, International Family Remittance Day, from 2023, it says: In the last 20 years, the value of remittances has increased fivefold. “It should be noted that one billion people – one in seven people in the world – are involved in remittances, as senders (200 million migrant workers) or recipients (an average family of four). One in nine people in the world (around 800 million in total) are supported by these flows of money. More than 70 countries worldwide, according to IFAD, depend on remittances for more than 4 percent of their gross domestic product. On average, migrant workers leave their country of origin with 200 to 300 US dollars every one to two months. That is only 15 percent of their income, because the rest remains in the host countries. However, the amounts transferred could represent up to 60 percent of total household income and secure the livelihoods of millions of families.”

According to the World Bank, private remittances from migrants have been the largest source of external financial flows in low- and middle-income countries (LMICs) excluding China since 2015. They are about three times higher than official development assistance and also significantly exceed foreign direct investment. For 2023, remittances in LMICs are estimated at US$669 billion (out of a total of US$860 billion). In 2023, the top five recipient countries for remittances among LMICs were India (US$125 billion), Mexico (US$67 billion), China (US$50 billion), the Philippines (US$40 billion) and Egypt (US$24 billion).

The importance of remeas will continue to grow in the coming years

Economies in which remittances account for a huge share of gross domestic product (GDP) include Tajikistan (48 percent of GDP), Tonga (41 percent), Samoa (32 percent), Lebanon (28 percent) and Nicaragua (27 percent). The other Central American states follow with shares of around 25 percent each.

By far the largest number of family money transfers are purchased from the USA, followed by the Gulf States (especially Saudi Arabia and the United Arab Emirates) and Russia, from where many remittances flow to Central Asia.

“During the crises, migrants have coped with the risks and demonstrated their resilience to help their families back home. However, high inflation and subdued global growth are affecting the amount of money they can send back,” says Iffath Sharif, World Bank Director for Social Protection and Labor at the end of 2023: “The labor markets and social policies of host countries must include migrants, whose remittances are an important lifeline for developing countries.” What is implied here can also be read in plain language as follows: In global capitalism, the export of cheap and easily exploited, poorly protected labor has become a key element. It promotes the concentration of capital and increases inequalities between states, but it also enables entire states to survive by having their impoverished populations meet their basic needs through private remittances from their family members. The states that receive a lot of remittances also benefit from the fact that the foreigners reduce their budget deficits, improve their balance of payments, and do not have to pay interest or repay. The price for this model is paid by the migrants on the increasingly expensive and dangerous migration routes. They often pay with their health or even their lives.

At least the official private money transfers are a good business all round for banks and a few specialised companies that form a kind of cartel and collect high fees. The global goals for sustainable development (SDG 10) call for these transfer fees to be reduced to 3 percent of the amount transferred by 2030. We are still a long way from that at the moment. In 2023, the transfer costs for 200 US dollars were still an average of 6 percent. The fees are usually higher the smaller the amount transferred. However, this SDG, which follows the neoliberal concept, has little to do with truly sustainable development, which would have to come from the communities, their autonomous decisions, territories and structures.

The importance of remittances will continue to grow in the coming years, with a new trend becoming apparent: the isolation policies of the USA and Europe and stricter border controls mean that more and more migrants are stuck in former transit countries such as Mexico or Guatemala, or Morocco, Tunisia and Turkey. They, too, are increasingly receiving remittances from their relatives who have “made it”. World Bank expert Ratha says: “These flows of money have a positive effect on the economies of the host countries.”

This article appeared (without footnotes) in the magazine Hinterland #56 /2024, p.57ff.