THE BLOG

Making Diaspora Remittances Go Further

19/06/2013 18:16 BST | Updated 18/08/2013 10:12 BST

When the UK last hosted the G8 summit in 2005, we wore white. Everywhere I looked, I saw people wearing white. Those rubber wristbands declared our commitment to 'make poverty history'. Since then, we've experienced double dip recession, mounting redundancies and rising youth unemployment, bringing us closer to the degrading and painful effects of poverty.

For the 2013 G8 summit, the major UK NGOs have launched the IF campaign to end hunger. Perhaps post-recession, policymakers shall have greater empathy and understanding of the compounded problems faced by developing countries. As for migrants and diasporas, the awful stench of poverty and deprivation continues to occupy their senses as they manage their new lives. They strive daily to enrich families and communities in poor countries across the world. This is done without fuss or fanfare, by cleaners and clinicians, builders and bankers alike, making them the hidden heroes of international development. The nexus between migration and development began to gain formal recognition in 2006, when the UN convened a High Level Dialogue on Migration and International Development (UNHLDMID), with a Global Forum for Migration and Development (GFMD) having taken place annually since 2007. As the G8 complete their meeting at Fermanagh on 18 June, the formal sessions of the second UNHLDMID starts in New York, culminating at the UN General Assembly on 3 - 4 October.

One of the most substantial contributions the diaspora is the moneys they send to countries of heritage. In 2012, remittance flows to developing countries was $400bn, of which $30bn went to Sub Saharan Africa. Total remittances to Africa are estimated to be over $60bn annually. In the UK, private international donations are estimated at £1bn, compared to formal remittances estimated at £2.5bn. According to the Organisation for Economic Cooperation and Development (OECD), in 2011, Official Development Assistance (ODA) to developing countries was $136bn, with $50bn going to Africa. In the same year, Foreign Direct Investments (FDI) to developing countries was $336bn, with Africa receiving $21bn. Private international donations from the UK are £1bn, compared to formal remittances estimated at £2.5bn.

In May, the Global Forum on Remittances (GFR) convened in Bangkok. Remarkably, there is still resistance from policymakers to provide remittances with the fiscal and regulatory advantages accorded to FDI, ODA or charitable donations. In 2006, I which proposed a remittance tax relief and matching scheme to the UN - RemitAid™ - comparable to the UK's Gift Aid. The Finance Ministers of the world's poorest countries adopted a resolution on RemitAid™, however the global economic crisis of 2008 prevented OECD governments from adopting the appropriate tax relief policies.

Remittances as Sustainable International Development Finance

Remittances are particularly important for sustainable development because the process is based on a continuous mode of self-help. In many poor countries, the volume of remittances is several times that of ODA and FDI, accounting for 10-15% of the national income of many medium-sized developing nations. The World Bank describes remittances as anti-cyclical, reflecting the fact that inflows are on a steady and growing pattern, with the tendency to increase further in times of both natural and man-made crises. Remittance inflows in poor countries are not countered by outflows in the form of interest, debt, dividend and expatriate payments. Funds circulate more times in the recipient economy and are made directly to the households of ordinary citizens, thus improving the multiplier effect and increasing financial and civil empowerment. Studies have confirmed that remittances contribute to the relief of poverty and amelioration of human welfare in poor countries because the inflows are spent on food, shelter, education, health services, community projects and other activities in line with Millennium Development Goals (MDGs). In February, Cass Business School published a report stating that households 'remitting' money overseas are more likely to make donations to domestic UK charities: 42% amongst remitters compared with 29% of households in the general population.

Community Tax Relief Similar to Gift Aid for Remittances

Like any other method of investment, remittances need the attention of progressive public policies. RemitAid™ is a scheme which mitigates the current imperfections and optimises the developmental benefits of remittances. However, unlike other tax incentives such as Venture Capital Trust, Enterprise Investment Scheme and even Gift Aid, RemitAid™ would be a fully-fledged 'community tax relief' whereby the full tax rebate or match funding is collected and pooled together in a common fund - instead of it being paid directly to individual remitters. This pooling of rebates or match funds eliminates motive, means and opportunity for abuse and creates resources substantial enough to fund effective and innovative development activities missed out by remittances, ODA and FDI. RemitAid™ will work in a simple way, helping to make development more effective and sustainable, fit for the demands of the 21st century.