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Dr Gift Mugano
Diasporans play a critical role in economic development from various fronts be it remittances, trade and investments. Zimbabwe, like any other African country needs remittances, exports and investments to propel the economy. This week’s discussion deals with these three pillars.
Remittances
African migrants sent $40 billion in remittances to African countries in2010. Migrant remittances are the most tangible and the least controversial link between migration and development.
Remittances tend to be relatively stable, and may also behave countercyclical with respect to the economic cycle of the recipient country. Surveys indicate that relatives and friends often send more remittances in response to negative shocks or a general downturn, and more affluent migrants’ portfolio choices are affected by exchange rate movements.
According to World Bank, remittances can also serve as an important support for a country’s creditworthiness and can improve access to international capital markets.
Remittances play an important role in reducing the incidence and severity of poverty. They help households diversify their sources of income while providing a much-needed source of savings and capital for investment.
Remittances are also associated with increased household investments in education, entrepreneurship, and health, all of which have a high social return in most circumstances.
Trade
Immigrants have a preference for their native country’s goods and services(supporting “nostalgic trade” in ethnic products). The importance of this effect is difficult to evaluate, because if the emigrants had stayed in their country of origin, they presumably would have demanded the same products.
The effect is further clouded because the migrants likely have more income than they would have had in the origin country, but their relocation to the destination country reduces the efficiency with which the good is supplied (for example, by adding transport costs).
More important, migrants can increase the availability of market information essential for trade by helping origin-country exporters find buyers,improve their knowledge of the market, and comply with government requirements and market standards. Migrants facilitate bilateral trade and investment between host and source countries because they help to overcome information asymmetries and other market imperfections.
For example, transnational networks can help producers of consumer goods find appropriate distributors, and assemblers to find the right component suppliers.
Sharing the same language or a similar cultural background eases communication and facilitates better understanding of transport documents, procedures, and regulations.
Direct Investment
Members of diasporas can increase investment flows between sending and receiving countries because they possess important information that can help identify investment opportunities and facilitate compliance with regulatory requirements.
Language skills and similar cultural backgrounds can greatly contribute to the profitability of investment in unfamiliar countries. Diasporas may use the information they have regarding their countries to invest directly. Alternatively, investors can improve their profitability by tapping the expertise of a diaspora member.
A major barrier for a multinational or foreign firm setting up a production facility in another country is uncertainty and lack of information regarding the new market.
For example, professionals and managers from Taiwan are very much sought after by multinationals such as Ciba, Nestle,and Phillips for their operations in China.
Members of a diaspora may be more willing than other investors to take on risks in their origin country because they are better placed to evaluate investment opportunities and possess contacts to facilitate this process.
Emotion, sense of duty, social networks,strength of diaspora organisations, and visits to the origin country are important determinants of diaspora investment. Studies have found a significant relationship between migrants,particularly skilled ones, and investment inflows to origin countries.
In Africa, Government agencies are working on improving their contacts with diasporas to generate investment opportunities for origin-country firms. Ethiopia, Ghana, Kenya, Nigeria, Rwanda, and other African countries are looking to tap into their diasporas for investments in their homeland countries.
For example, the East African Community recognises the need to create a suitable mechanism to encourage diaspora members to channel remittances toward investment projects in partnering states, so they are developing a proposal to attract diaspora financing.
Both government and the private sector have supported business forums to attract diaspora investors. One of the new roles of African Investment Promotion Agencies, for example, in Ethiopia, Ghana, Nigeria, and Uganda, is to provide accurate information and linkage opportunities to investors, including from diasporas.
Some private firms and African diaspora associations also provide information on investment opportunities and sourcing in their homeland countries and facilitate contacts between traders in destination and origin countries.
Investments by households
Many migrants transfer funds to households in origin countries for the purpose of investment. Data from household surveys reveal that households receiving international remittances from Organisation for Economic Cooperation and Development countries have been making productive investments in agricultural equipment, building a house, business, land purchases, improving the farm, and other investments(36 percent in Burkina Faso, 55 percent in Kenya, 57 percent in Nigeria, 15 percent in Senegal, and 20 percent in Uganda).Households receiving transfers from other African countries also are investing in business activities, housing, and other investments in Kenya(47 percent), Nigeria (40 percent), Uganda (19,3 percent), and Burkina Faso (19 percent).
Evidence has shown that older migrants are more likely to invest in housing in their hometown and to devote a larger share of household income to these housing investments. Literature shows that “housing investments may be the first stage of a broader investment relationship between migrants and their countries of origin.
African migrants in other African countries set up small businesses such as restaurants and beauty salons, or invest in housing. In other cases, the African diaspora has invested in service sector activities such as import/export companies, telecommunications, and tourism and transport companies (for example, Celtel, Sudan; Databank, Ghana; Geometric Power Limited, Nigeria; and Teylium, Senegal). Some governments have eased restrictions on foreign land ownership to attract investments from diasporas.
For example, the Ethiopian government allowed holders of a yellow card (the identification card for the Ethiopian diaspora) to lease land parcels at low rates for the construction of residences in Addis Ababa. Because of the high demand for land, the city of Addis Ababa officially suspended allocation of residential land for the diaspora in 2008.
The Rwanda Diaspora General Directorate allows groups of 15 or more people to acquire land in Kigali for the purpose of house construction, provided the project is approved by the Kigali City Council based on the Kigali Master Plan.10 Credit Financier de Cameroon offers a housing loan to migrants to attract investment in real estate.
Investments in Capital Markets
Members of diasporas can act as catalysts for the development of financial and capital markets in their countries of origin by diversifying the investor base (the capital markets of many countries are dominated by investments from government and large companies), by introducing new financial products, and by providing a reliable source of funding.
Diaspora connections with markets in destination and origin countries are important. Diaspora bonds and diaspora investment funds have been used by Governments to encourage diaspora investments in Africa.
Dr Mugano is an Author and Expert in Trade, Investments and Development. He is a Research Associate at Nelson Mandela Metropolitan University and a Senior Lecturer at the Zimbabwe Ezekiel Guti University. Feedback: Email: [email protected] , Cell: +263 772 541 209.
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