The Economics of Migration

In the current debate surrounding refugee migration, most people seem to fall into one of two camps: those who favor hosting refugees, and those who oppose it. But many seem to have forgotten that human migration has supported human progress and contributed to global development for centuries.

For opponents of migration, the large influx of foreign born laborers seeking jobs, education, and security is something to be feared. They fear that refugees and other migrant groups are low skilled workers hoping only to benefit from social welfare programs and decrease the standard of living in their host country.  Evidence suggests, however, that on average over a third of migrants entering the workforce have completed post-secondary education, and that in most countries, migrants contribute more in taxes and social contributions than they receive in individual benefits.

We must rise above this seemingly instinctual reaction and consider the benefits that migration has had in those countries that migrants and refugees leave behind. Not only does migration increase wages for workers that stay behind, but migrant workers often remit money to their families back home. This supplementary income is, in turn, invested in education and health care, important indicators of a country’s development that can lift people out of poverty. The Migration and Remittances Factbook 2016 suggests that total remittances were estimated to have reached $601 billion in 2015, of which $441 billion went to developing countries, a total that is almost three times larger than official development aid flows. These remittance flows to developing countries have grown significantly in recent years, from $325 billion in 2010, to $372 billion in 2011 and $401 billion in 2012.

Nevertheless, the high financial costs of international migration and the transmission of remittances are inhibiting the benefits of migration. The 2015 Sustainable Development Goals (SDGs) address these issues. Target 8.8 notes that labor rights, including those of migrant workers, should be protected, and Target 10.7 calls for the facilitation of the orderly, safe, regular and responsible migration of people through the implementation of planned and well-managed migration policies. In addition, Target 10.c strives to reduce the costs associated with remittances to 3% by 2030. Taken all together, these innovative targets would reduce the cost of remittances and encourage sustainable and profitable international migration.

As the Sustainable Development Goals suggest, we need to recognize what technology can do today and use it to redesign the world for a more inclusive and prosperous tomorrow. Modern technology requires specialized knowledge, and the easiest way to gather such knowledge is to recruit from outside of the system. It is easier to move brains than it is to move knowledge and expertise. As such, migration is key to the diffusion of knowledge and its long-term positive impact on worldwide development. In short, we cannot have global markets, trade, products, and services without global migration.

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Down and Out in Doha

Notoriety in the Gulf region usually rests on Saudi Arabia or the United Arab Emirates, but Qatar has slowly been rising in the world’s consciousness. Mostly this has been due to sporting reasons, with the purchase of Paris Saint-Germain by the Qatari Investment Authority and the granting of the 2022 World Cup to Qatar. However, this increased attention and scrutiny has shed more light on the “kafala” system of migration used in the Gulf states, and used extensively in Qatar. This has swiftly led to criticism of this system and its many abuses against migrant workers.

Migrant workers in Qatar at a construction site for the world cup

The kafala system is the migration laws and regulations used mostly in the Gulf states. Under the kafala system, sponsors pay for the recruitment of foreign workers and assume economic and financial responsibility for them. The visas for the workers are also tied to the sponsor, linking employee and employer in a tight relationship. Because the visa is bound to the employer, workers cannot seek employment with another employer without the consent of their sponsor. Any breaking of the contract means that the worker must compensate their sponsor the recruitment fee that the sponsor had paid. Workers must even get permission from their employers to leave the country while under contract. Being stuck with your employer for a two year period like this has led to numerous abuses.

Qatar in particular has been prone to abuses tied to the kafala system. With a Gross National Income per capita of $80,470, Qatar is awash with petrodollars to fund the importation of skilled and unskilled workers. Roughly 85% of Qatar’s population are not Qatari citizens, highlighting their reliance on foreign workers, particularly from South Asia and the Philippines. Many times, workers are promised a certain level of wages, and then either paid drastically lower wages or not paid at all. Workers in the construction industry face particularly bad conditions. The Indian embassy in Qatar has reported that over 500 Indians have died in Qatar since January 2012, while 185 Nepalese died in 2013 alone, mostly from cardiac arrest resulting from working long hours in the heat. Amnesty International has reported about workers living in cramped accommodations with wooden floors and no mattresses, all while being owed 1.5 million riyals ($412,000) in backpay.

Market street in Qatar

The abuses of the kafala system are not limited to construction workers. A recent report by the Guardian found that domestic workers and restaurant employees were working extremely long hours while not receiving the pay they were promised. Workers have needed to find second jobs to make enough money to get by, even though this is illegal under the kafala system. Some have even needed their families to send money, invalidating their reason to come to Qatar in the first place. Domestic workers in Qatar typically work more hours than other foreign workers, averaging 60 hours a week. Oddly enough, even soccer players have been caught under the kafala system, with French player Zahir Belounis being stuck in Qatar for a year after his club, Al-Jaish, refused to grant an exit permit. This led to the players’ union, FIFPro, sending a delegation to Qatar in 2013 to advocate against the kafala system.

One of the stadium designs for the 2022 World Cup

With increased international attention on Qatar’s kafala system, it remains to be seen what Qatar’s response will be. Most of the gulf states have similar systems, but have responded differently. Bahrain scrapped their kafala system, replacing employer sponsorship with sponsorship by the state Labour Authority. Meanwhile, Saudi Arabia has focused on deporting foreign workers to open up more jobs for native Saudis. Qatar has so far issued new safety and security reforms while increasing the amount of trained labor inspectors, all without abolishing the kafala system. With the World Cup in Qatar still a ways off in 2022, it remains to be seen how these new regulations will help migrant workers, or if anything changes. One thing that can be guaranteed is that this practice will not disappear any time soon.

Long Arm of the Taxman Reaches to the Diaspora

On a global scale, remittances are one of the most important financial flows to economic development. The World Bank has found that remittances have reached $414 billion globally, and expected to cross the $500 billion by 2016. This massive amount of money flowing across borders has lead many academics and policy makers to dream up ideas of ways to harness remittances to help develop their countries. In particular, Eritrea has decided on a more proactive and heavy-handed strategy, specifically by taxing their diaspora community as if they were their own citizens. By using strong-arm tactics and threats to the families of the Eritrean expatriate community, Eritrea’s government is trying to expropriate their money.

Map of Eritrea and its surrounding countries

What has become known as a diaspora tax is a 2% income tax imposed by Eritrean consulates in various cities around the world. This is usually assessed with forms to list monthly or yearly income going back to Eritrean independence in 1993. Unpaid taxes are expected to be paid after a person’s 18th birthday, with students even expected to contribute at least 50 ($84). One man in 2012 was demanded to pay 600 euros in “arrears” to visit his mother, and then 800 euros to visit a seriously ill brother. The retribution for failure of payment can be harsh. Family members in Eritrea can be harassed, with seizure of property and black-listing of bank accounts all considered as possible retribution. There have even been reports of people not being able to leave Eritrea unless they paid their diaspora tax.

This is an important issue due to the size of the Eritrean diaspora and migration. A report from the World Bank on migration and remittances stated in 2010 that emigration out of Eritrea was 941,000 people, roughly 18% of the total population. The impact from this migration is massive for the Eritrean economy, with estimates of remittances being 32% of GDP in 2005. This figure lines up with a Chatham House report from 2007 that estimated that remittances were an estimated $350-400 million, which would mean $7-8 million would have had to been gained by the Eritrean government without even considering what would have had to been paid before the remittances were sent. With the mining sector becoming more important, Eritrea may become less dependent on remittances for their economic development. Even so, a report by Berhane Tewolde has shown that over one-fifth of Eritreans live in a house with at least one migrant, of which ¾ receive remittances from abroad, highlighting just how important remittances are for normal Eritreans.

Eritrean diplomat Semere Ghebremariam O. Micael, expelled from Canada

The condemnation from the international community has been swift, both for the practical implications of the diaspora and also the use of the funds by the Eritrean government. Eritrea’s government is widely considered as a highly corrupt country, ranking 160 out of 177 countries in the last Corruptions Perceptions Index by Transparency International. It also has been ranked last in Report Without Borders’ Press Freedom Index, behind North Korea. This terrible ranking stems from the fact that 30 journalists are imprisoned, the most in Africa, and the governments control of media while jamming incoming independent broadcasts. They are are also allegedly funneling money to Al-Shabaab in Somalia, causing regional destabilization for the sake of indirectly attacking Ethiopia, Eritrea’s long-standing enemy. The United Nations Security Council has already acted upon the diaspora tax, banning them through Resolution 2023 in 2011. Even so, Eritrean consulates around the world have continued trying to collect the tax, with Canada expelling Semere Ghebremariam O Micael, Eritrea’s consul in Toronto, for continuing to collect the diaspora tax. Micael’s response was that he was only providing “information” on how to provide donations.

It’s hard to tell whether this policy of taxing the diaspora will continue with increasing pressure from the international community. Even the stability in Eritrea can be questioned, with an attempted coup failing in January 2013. One thing that is for certain is that only normal Eritreans are the ones with the most to lose from this policy.

President of Eritrea, Isaias Afwerki

Bitcoins: A New Way to Send Money Home?

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In order to send $200 from the United States to Kenya it costs around $15. To send to the Philippines $10.  To send to the Dominican Republic $13.  On average, sending remittances costs around 8.58% of the amount sent.  Due to the high cost of sending money overseas, it is no wonder that migrants want to find the cheapest way possible to send their money back home.  With the emerging popularity of Bitcoin, migrants may have found a way to send money overseas while avoiding the high fees of companies like Western Union and MoneyGram.

Bitcoin, a form of virtual currency, offers a way to transfer money anywhere in the world for an extremely low fee.  It was established in 2009 and has since gained a reputation for its prices being highly volatile.  Bitcoin is earned through data-mining, a process which, in the simplest of definitions, involves a computer running an open source software program that solves complex mathematical problems.  Once a problem is solved, a Bitcoin is gained.  However, this process is slow and solving the mathematical problem can take weeks.  Perhaps an easier way to obtain Bitcoin is to purchase it via websites like MtGox.  As soon as an individual obtains Bitcoin it is easily and immediately transferable peer-to-peer.

Using Bitcoin to send remittances essentially decreases the need for companies like Western Union or MoneyGram, thus making it a seemingly good idea to use for overseas money transfers.  These companies may begin to compete with newly forming Bitcoin exchange companies like Buttercoin and BitPesa, who intend to open local Bitcoin exchanges within countries and trade Bitcoins for local currency.  While Buttercoin and BitPesa will charge a fee, it is not expected to be nearly as high as fees charged by traditional money transfer companies.

Another incentive for migrants to use Bitcoin is the speed at which the money will transfer.  Traditional money transfer routes can take anywhere from under an hour to five days or more to wire money.  With Bitcoin’s peer-to-peer network, transferring money is as quick as sending an email.

However Internet availability in the developing world is a major hurdle when it comes to sending remittances via Bitcoin.  While the sender is unlikely to have problems accessing and maintaining an internet connection – since many senders live in well developed countries – the recipients of remittances may have difficulty accessing the internet.  This poses a problem for Bitcoin because it functions as an online currency, and without access to the internet it cannot operate.

The volatility of Bitcoin may have migrants skeptical about using it at all for remittances.  However, this worry is quelled by the fact that Bitcoin exchange companies plan to absorb any change in price.  For example, when an individual sends $200 worth of Bitcoin, that price is locked in and the recipient will receive that money even if the price of Bitcoin drops.

But perhaps Bitcoin’s biggest downfall, at least when it comes to sending remittances, are the Bitcoin exchanges.  The idea of migrants using Bitcoin to send money back home is still new, and essentially an untapped market.  Some of the largest recipients of remittances, India, the Philippines, Mexico, Nigeria, and Egypt, simply do not have established Bitcoin exchanges yet, and their migrant populations do not know what Bitcoin is.  Companies like Buttercoin aim to tackle this problem by setting up local Bitcoin exchanges in countries that receive high amounts of remittances.

With remittances expected to rise to $707 billion by 2016, Bitcoin can become a viable way to send and receive remittances anywhere in the world for those looking to cut out high money transfer fees.   It remains to be seen, however, it is likely that Bitcoin exchanges are going to have an impact on traditional wire transfer companies in the future.

 

Migrants of a Different Kind

Samysuddin, a current resident of Indonesia, can recall the days when he would take his trusted speargun and dive into the coastal waters of Ujung Village and be able to catch his family’s dinner. But things have since changed in the waters off the Kapoposang island of Indonesia: “I can spend the whole day motoring around, paddling and swimming, I’ll try everything. Sometimes I don’t catch any fish and we’ll go a whole day without eating any. These days, the coral reefs around Kapoposang are degrading. If the reefs continue to degrade then there won’t be any fish here. There won’t be anything left for us to do.”

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A home on the water in Indonesia, a country where migration is already an inevitable method of adaptation and will be exasperated in the future. (Source: Curt Carnemark / World Bank)

Samysuddin is a part of a growing population of Indonesia migrants that have been displaced as a result of economic, social, and now adverse environmental changes.  changes.  Narratives like his are becoming a familiar tocsin. UN forecasts predict  “200 million to 1 billion” people will have to migrate as a result of climate change with 200 million being the most widely cited estimation but not devoid of misapplication and manipulation. While there is a considerable amount of research on migration as a response to various, social, political, and economic conditions, humans are now beginning to migrate as an adaptive strategy to adverse environmental conditions. Migration due to rising sea levels is in its most nascent forms as push and pull factors vary greatly among regions and social groups and are often intertwined with livelihood opportunities and public policy responses. For example, research conducted in the aftermath of Hurricane Mitch found that rural Nicaraguan families in extreme poverty were the least likely to migrate as they were unable to finance the cost of moving. Yet Costa Rica still absorbed an enormous influx of Nicaraguan migrants that have been victims of violence and have faced constraints in accessing social services.

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When All Else Falls, Remittances Rise

After the recent military ousting of president Morsi by the Egyptian military, the US has decided to put a cap on military aid to the tumultuous country. This is not the first time. Back in August, the U.S. had cut some of its economic aid to the Egyptian government. Cutting off military aid may have a louder effect, considering military aid to Egypt greatly  surpasses economic aid. Thus far, the Egyptian government has been expectedly peeved in response to these actions.

With government aid in the news, it’s relevant to look at some of the other financial flows to Egypt. At CGP, we try to get a more complete picture of foreign assistance by looking at investment, philanthropy, and remittances.

With the recent turmoil, investment, the most fickle of the four flows, has subsided after the sharp rise in the spring of 2013. Much of this earlier rise came from neighboring Arab nations, after Europe and the US pulled out. Since the military takeover, sources suggest that all in all FDI has dried up and billions have been lost.

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New Trends in Migration: South African Case Study

As our world becomes more globalized and inter-connected, people – and their ideas, possessions, and cultures – are becoming more mobile.  International migration is becoming an increasingly important part of international development, as well as individual states’ policies.  The number of international migrants increased from 150 million in 2000 to 214 million in 2012.  Migration affects almost every country in the world, and 49 percent of migrants globally are women.  And the World Bank predicts that, as populations age and shrink in developed countries while increasing dramatically in developing ones, international migration will continue to grow as a global phenomenon.

Immigration lines at a Japanese airport
Immigration lines at a Japanese airport

However, the International Organization for Migration’s (IOM) 2013 World Migration Report, launched on September 13 in Geneva, states that “migration remains inadequately integrated into development frameworks at national and local levels, and public perception of migrants and migration are often very negative.”  This report uses Gallup World Poll data from over 150 countries to examine how migration affects individual well being, expanding this field beyond traditional economic perspectives.  It also corrects the common assumption that most migrants move from developing countries to developed countries (South-North).   Instead, the data shows that “at least one-third of migrants move from one developing country to another and 22 percent migrate from one developed country to another” (South-South and North-North).  South-South migrants had the worst outcomes and were often unable to afford basic necessities, even after many years.

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