As one of the least volatile sources of foreign exchange earnings, remittance inflows from overseas workers form a critical financial resource for many Middle East and North African economies.
In Lebanon, which is the world’s eighth-largest recipient of overseas remittances, remittance inflows account for 21.4 per cent of gross domestic product and help keep the debt-ridden economy afloat.
Many of the region’s oil-importing countries have become highly dependent on remittance inflows, including Egypt, Jordan, Lebanon, Morocco and Tunisia. Meanwhile, the wealthy Gulf states of Saudi Arabia, Kuwait, Qatar and the UAE are sources of remittance outflows from foreign workers to the Indian subcontinent.
The largest single source of cash for Egypt comes from US-based Egyptians, who sent $2.2bn back home in 2009-10
Egypt is a significant recipient of remittances from abroad and with its finances under pressure due to the recent uprisings, an increase in inflows in the 2010-11 financial year (ending 30 June) brought in $12.4bn – an increase of $2.8bn on the previous year. This has helped to insulate the currency from external pressure. Without these inflows, the Egyptian pound would have lost much more of its value in the tumult of 2011 than it actually did.
Remittance influx to Mena states
Despite tough global economic conditions, the latest available figures reveal rising financial transfers back to Mena states. Remittances to the Mena region grew by a compound annual growth rate of 12.7 per cent during the 2005-08 period.
|Top 10 remittance flow recipients among developing countries|
|$bn||Growth rate (%)||% GDP|
|GDP=Gross domestic product. Source: Byblos Bank/World Bank|
Lebanon posted the second-fastest growth in remittances among developing countries last year, with growth in expatriate inflows reaching $8.4bn in 2010 – a year-on-year increase of 6.5 per cent. Only Vietnam, which saw a 16.4 per cent increase to $8bn, showed a higher year-on-year growth rate than Lebanon.
Lebanon was also the largest recipient of remittances among 17 Mena countries, as well as among 14 Arab countries included in the World Bank survey. The country accounted for 21.7 per cent of remittance inflows to Arab countries and 22 per cent of total remittance flows to the Mena region in 2010.
The reason behind this is a historical culture of emigration in Lebanon that has spanned many generations. A comprehensive study on emigration trends from Lebanon, cited by the local Byblos Bank, estimates that the total number of emigrants between 1992 and 2007 was at least 466,000 and that 45 per cent of households in Lebanon have at least one family member who has emigrated during that period. It is also a culture where emigrants have retained close links to the home country.
Overall, the Mena region’s closer integration with the world’s economy has triggered rising inflows of capital. As a result, the regional economic downturn affected remittance inflows to Mena countries in 2009, when the growth rate dropped by 6.8 percentage points to $34bn.
Declines were recorded in 2009 across all the major remittance-receiving economies. According to Byblos Bank, inflows declined in Egypt (-17.8 per cent), Morocco (-9 per cent), Algeria (-6.5 per cent), Mauritania (-6 per cent), Jordan (-5.2 per cent), Syria (-4.8 per cent), Sudan (-3.5 per cent), Yemen (-2.3 per cent) and Tunisia (-0.5 per cent) during the year, and only rose in the West Bank and Gaza (up by 3.4 per cent).
Last year, however, proved a robust one for the region with a 6.2 per cent increase in remittance flows to $36bn in 2010. Going forward, the World Bank forecasts a smaller increase this year of just 3.4 per cent, before picking up to 5.5-5.6 per cent growth rates in 2012-13, by which time remittance flows are projected to exceed $40bn.
There are some challenges for Mena countries that are looking to tap increased remittances. The overall savings pool available from their expatriates is smaller than in other comparable regions. As the bar chart to the left shows, the estimated Mena diaspora savings in 2009 were just over $41bn, compared to the $116bn of Latin America and the Caribbean.
Arab uprising effects on remittances
The long-term impact of the recent uprisings in Arab countries on remittance flows this year is still unclear. Unlike capital flows across borders, remittances show a lower correlation with economic cycles. Remittances from expatriates have proved counter-cyclical in response to political and economic crises.
Morocco saw a 7 per cent increase in remittances to MD26.7bn in the first half of 2011, according to data from the country’s foreign exchange regulator, Office des Changes.
However, Libya’s war this year has exerted a negative impact on outward remittance flows from the North African country, with hundreds of thousands of Egyptian workers (and other foreign nationals) forced to flee the country. This will have played a role in decreasing its remittance inflows.
Looking at Central Bank of Egypt statistics for the first quarter of 2011, a period during which both Egypt and Libya saw protests, it is clear that the upheaval stymied transfers back to the home country. Remittance inflows fell from $2.877bn in the first quarter of 2010 to $2.818bn in the second quarter of the year, which went against the general trend that showed a substantial increase in remittances back to Egypt.
The disruption to the estimated one million Egyptians working in Libya may be the prime cause of that decline – as were the series of bank closures in Egypt, which prevented many overseas Egyptians from sending remittances home. This blocked the major channel for money transfer back to families in Egypt.
Much depends on where the expatriates are based. An estimated 70 per cent of the six million Egyptians working abroad live in the Gulf states. But the largest single source of cash comes from the US, where Egyptian expatriates sent $2.2bn back to their home country in 2009-10. In comparison, Saudi Arabia-based Egyptians sent home $1bn between 2002 and 2009.
Transaction costs for remittances
Another influencing factor in remittance flows is the cost for each transaction to send the money. Statistics from the World Bank show that Lebanon ranked as the most expensive destination for sending $200 from the US, among 24 countries with available data. The cost of sending remittances from the US to Lebanon were 12.6 per cent of a $200 transfer in the first quarter of 2011.
The broader impact of the Arab uprisings on remittance flows will depend on how quickly countries such as Libya can recover. Egyptians were critical for keeping Libya’s economy ticking and the looming reconstruction process will clearly reabsorb large number of Egyptian workers into the economy
Egypt itself is not a major source of remittances to Arab countries. Nor are Syria and Yemen, the other countries most impacted by the upheavals. While Bahrain and Oman – which are major employers of Arab workers from outside the Gulf region – have been hit by protests, these have subsided and any impact on remittances will be marginal.
While Morocco and Algeria’s economies, which are closely linked with the European Union’s economy, may face continued pressure on remittance flows if the Eurozone economic crisis continues, other countries, such as Egypt – where overseas workers are generally employed in the more stable economies of the Gulf states or the US – could fare better. Lebanon’s diverse mix of emigrants should ensure a continued steady rise in remittance flows, though sharp economic contractions, such as in the third quarter of 2008 when remittance inflows to Lebanon dropped by 20 per cent, will clearly exert an impact.
Mena states may also be inclined to consider other means of tapping the savings of their emigrant populations. One option being highlighted by the World Bank is the diaspora bond. This is a debt instrument issued by a sovereign or corporate entity to raise financing from its overseas diaspora and may prove less volatile than money transfers.
Palestine, with a diaspora population that far exceeds that of the West Bank and Gaza, is now beginning to explore ways of tapping emigrant capital. Chile is home to the largest single population of Palestinians outside the Middle East, estimated at 500,000 workers. Six out of Chile’s eight banks are Palestinian-owned, as are several of the country’s largest media companies. In May, an investment fund for the Palestinian community in Chile started investing in the Palestine Exchange. The bourse’s chief executive, Ahmad Aweidah told MEED: “This is a direct material benefit from reaching out to investors in the Palestinian diaspora.”
These increasingly innovative ways of absorbing the sentimental and patriotic instincts of the Mena region’s overseas communities will provided added support to the region’s collective balance of payments and, for some, will remain a critical form of life support during troubled times.