The money go-round

Graham Reid - The New Zealand Herald
10.05.2003

While many countries debate how they will target their overseas aid, substantial amounts of money are making their way to people in impoverished countries. And governments, well-intentioned or parsimonious when it comes to their aid programmes, have nothing to do with it. The money comes as remittances from those living overseas.

Members of the Somali community in New Zealand, for example, send money regularly to their families at home, says community leader Mahad Warsame. Many of the families are in refugee camps and are dependent on these monies, so they expect to receive it. But it is also a cultural trait.

"Some send money monthly, those who work. Those who don't work, but are maybe on a benefit, send money every three months or six months because they can't afford it. But in our culture people like to help with their back-home family," Warsame says.

The amounts vary and the people in Somalia understand their New Zealand-based benefactors will send less than those refugees and migrants in wealthier countries, such as the United States. But many here manage to send between $200 and $300 a month, a few as much as $500.

Some families work two jobs to keep themselves and their back-home family solvent. With one million Somalis living outside their homeland, and most sending remittance money back, millions of dollars a year are pouring into that war-battered country.

Somalia, like many other countries, is dependent on this money for its economic survival. And so are individuals.

Recently the Guardian reported on Martina from Colombia who has been in London for two years on a student visa. She works an early morning shift in a hotel illegally and sends more than £100 ($281) each month to her mother, who has a small farm outside Bogota and needs to pay off her bank debt.

Juan Ceja is typical of many in the Hispanic population in the United States. He left Mexico to become a construction worker in California and regularly sends money back to his ailing mother. When times are tough for him and his family of four the amount can be as little as US$60 ($105), but when work is plentiful it may be hundreds of dollars.

Remittance money from Mexican migrants in the US reached a record US$10 billion ($17 billion) last year. Despite the slow American economy, immigrants - some 31 million residents were born abroad - sent home a record $13 billion ($22 billion) last year. Latin American immigrants sent around 10 per cent of their income.

This movement of money is an established global pattern from wealthy economies to poorer ones as families try to take care of their own.

In New Zealand, we have long been aware of the flow of remittance money to Samoa, Tonga, the Cook Islands and other Pacific nations.

Specific figures are hard to determine but last year it was estimated Samoans living overseas - a large percentage in New Zealand - sent home about 188 million tala (around $106 million), which amounted to about 20 per cent of Samoa's GDP.

Around 2 per cent more is unregistered. Put that against New Zealand's aid figure for last year - $7.49 million - and the nature of Samoa's dependency on foreign remittances is stark.

This movement of money from wealthy to poor countries has a long local history - Chinese gold miners came to New Zealand in the 1860s looking for work and to send money to support families at home - but in the past decade the global amount has increased markedly.

Between April and September 2001 remittances back to the Philippines from the one million Filipinos working abroad were 55.3 billion pesos ($1.8 billion). Last year the amount of American dollars to Latin America was projected to reach more than US$18 billion ($31 billion) by the end of 2005, up from US$13 billion ($22.6 billion) last year.

This is not just money with an emotional attachment, it is essential in the economies of many countries. Around a third of Tonga's GDP comes from foreign remittances.

World Bank figures show that last year, for the first time, more money came from relatively poor migrant workers in rich countries than did the combined total of government aid, private bank lending and IMF/World Bank aid and assistance.

The total value of these remittances to developing countries reached US$80 billion ($139 billion), double the aid provided by rich nations.

"In 1995, remittances amounted to only one-third of debt flows," says Philip Suttle, author of the World Bank's Global Development Finance report. "Last year they completely dwarfed them."

Suttle believes US$80 billion is a "considerable underestimate" of the actual amount. Expatriate workers in Saudi Arabia, until recently the leading source of migrant worker remittances, frequently use the hawala system of channelling funds back to their homeland. This system is unregulated and based on the use of promissory notes for the exchange of cash and gold.

Pakistani bankers investigating the movement of al Qaeda money last year estimated the hawala system could account for around US$3 billion ($5.22 billion) entering their country every year, compared with only US$1 billion ($1.74 billion) via the formal banking system.

It is also impossible to assess how much money was carried in cash across borders, or in the form of gold or assets which would be realised into cash in the home economy. In the US, however, banks and services which control money transfers from expatriate Mexicans and Central Americans can supply accurate statistics of the legal transactions.

India and Mexico are the largest recipients of remittances from the US - US$10 billion ($17.4 billion) each - followed by the Philippines with US$6.4 billion ($11.14 billion). India's earnings from this source are nearly double the US$5.8 billion ($10 billion) it earns from its software industry, and much of that business had been built on remittance money from expats earning big salaries in California's Silicon Valley.

In Britain the story is similar: "Non-resident Bangladeshis from Britain send home far more than the equivalent amount of British aid through official and unofficial sources," says Murad Qureishi of the British Bangladeshi Professional Association. "They constitute almost a third of foreign exchange earnings."

This inevitably creates a climate of dependency, and one subject to whims of the patron economy. When the New Zealand dollar falls or the economy tightens, less remittance money, or money of less value, can be sent home. The squeeze is felt not just in the homes of Auckland but in fales around Apia.

In the case of Samoa, that is bad for businesses here because a substantial proportion of the Samoan spend is on New Zealand imports. This country's exports to Samoa are valued at around $85 million.

This interdependence of economies is full of nuance and sometimes sudden change. It will be months before anyone can run an abacus over remittances from Filipino maids in Hong Kong to assess the effect of Sars on the amounts people have been able to send home.

Transactions are not simply from First World to Third World economies, either. When a manager for the World Bank, Denise Aldous, suggested at a Pacific Economic Symposium in Auckland last year that Pacific Islanders stop sending money home and take their skills back instead, the Prime Minister of the Cook Islands, Dr Robert Woonton, dismissed the notion.

He said many former Cook Islanders used to send money home, but now the movement was reversed as those in New Zealand struggled with mortgages while the Cooks enjoyed a strong economy thanks to a boom in the fishing and pearl industries.

A looming unaddressed issue is how long Pacific countries like Samoa can rely on remittance money. As families here become third and fourth generation expats, their ties with their villages and extended families become tenuous to the point of breaking.

It is a fair question to ask why you should send money back to people you barely know in a country you rarely see when your kids need shoes and school fees.

Manukau City councillor Su'a William Sio says there is increasing reluctance to send money back to Samoa, not because people don't want to but, when they are struggling on low incomes here, they are overwhelmed by personal circumstances.

He says as New Zealand underwent the economic upheavals of the 80s and early 90s, Pacific Island communities were hit especially hard and were therefore unable to send money home. Even today many are struggling just to pay their own bills.

There are also cultural changes which affect Samoans living abroad, says Sio. When members marry outside the Samoan community the ties to home are loosened for each subsequent generation.

"There is also the establishment of Samoan churches here in New Zealand which have taken over the role of the Samoan church in the islands. People are expected to contribute to the maintenance of that structure, not only the physical structure but the human structures which are set up by the church to provide ongoing support to the youth, women and the leadership.

"I believe as time goes by you will see a diminishing amount of remittances going back. The other evidence for that is you now see groups of churches coming from the island to New Zealand specifically for fundraising."

Sio believes Samoans, as with other Pacific people, are on a journey.

"People are beginning to realise that the New Zealand way of life requires that you be financially literate to manage your meagre resources, as opposed to the beginning of the journey when you had lots of land and banana and taro growing all over the place."

Back in the islands, there is also a move away from thatched roofs to iron roofs, and from wood posts to concrete. It makes fales and homes more durable, but also more expensive to build.

Expat families are frequently called on to help in the costs of specific projects like buying a truck or establishing local store, which require significant funds.

But Sio says the notion that village people simply lie around and wait for remittance money to come in is a perception rather than the reality.

In the early 90s when taro blight devastated plantations in Samoa, many people were reliant on overseas families as villages tried to find other ways to earn income. But that is no longer the case.

However, there is still the expectation, when building communal facilities at home, that people overseas will contribute. Most are happy to do so when they see a real need but have become increasingly reluctant to send money home without a specific purpose.

Because remittance money is subject to the whims of its patron economy, it is a fragile and unreliable factor in homeland economies. With the New Zealand dollar at a five-year high, few in the recipient countries are concerned.

But if that should change - and economies always change - then the tide would slow. The impact on dependant families and the infrastructure services of hospitals and schools relying on this source of funds would be disastrous.

In the meantime however money, billion by billion, continues to move silently around the globe