Remittances: a crutch or a boost?

It’s a common scene in Nepal: walking through a small village, old women sit on straw mats outside of their houses smoking, sipping milk tea and basking in the warmth of the sun. A few small children run around playing while their mothers cut grass for the goats, cook food, or wash cloths on a rock at the neighborhood tap. A few middle-aged men work in the fields, but many sit inside and drink the local moonshine, raksi, instead. A handful of early-teen aged kids lounge about, often wearing jeans, Avril Lavigne tee-shirts and sporting stylish “Korean punk” hair cuts. Aside from school, they have nothing to do. They are simply biding their time until they can get out of this place, either to Kathmandu, or – to another country.

Did you notice who’s missing from this picture? In the villages there are scarcely any young men to be seen. When you talk to any mother of a twenty or thirty-something year old male, the story is usually the same: He’s either in Kathmandu or working abroad. A few have children in the US or Europe (usually wealthier families), but most either live in India, Malaysia or the Middle East working IT or construction. Frequently they leave young wives and children behind. 

Admittedly the picture is a bit different in the city where I live. As both the District and Zonal headquarters, Baglung Bazar is the regional economic and governmental hub. Among it’s 30,000-45,000 residents, I do indeed see a healthy number of young men. But – most of them do not appear rooted to this place. I see many riding around on tractor-trailers, hauling building materials to and fro; I see many digging up pipe to replace before the next monsoon hits; I see a few sitting idly behind pasal (shop) counters, usually owned by their parents. But nearly half are merely hanging out with other twenty-somethings, generally either gathered around a table game or running around a futbol field. My host brother is one such twenty-something. He is twenty-two years old, has not attempted education beyond high school and openly admits to having no career ambitions – he just wants to go abroad. Born into a wealthy family, he owns both a motorcycle and a laptop computer and spends his days playing futbol and video games. I asked him what he wants to do with his life, and he flatly responded that he doesn’t know. But he wants to go to Europe maybe – to Spain or Portugal, where he says a few of his friends live. I asked if any had returned home since they moved. “Wahaaharu kahilepani pharkaaunu bhaeko chha” – “they’ve never returned” – he tells me.

1000 Nepalis leave the country every day – or 360,000 each year, or around 10% of the population. Given the choice, many will never return to Nepal even if it means over-staying tourist or temporary work visas.

When you look at the economics, it is easy to understand why so many flee. The average government employee makes about 15,000 Nepali rupees (NPR) a month (~$170 USD) and a doctor in Kathmandu, the capital, makes about 40,000 NPR. But a construction worker in Dubai makes up to 200,000 NPR ($2,300), and most nurses and doctors in the USA or UK make considerably more.There are several international ATMs in the small city where I live, and around the first of the month, like clockwork, there’s a long line out the door of every single one. Last time I counted 75 people waiting outside the ATM nearest my house. It’s fairly safe to assume that this date aligns with their sons’ paydays – and thus the day when their earnings are sent home. Between ads for children’s dietary supplements and building materials, commercials for remittance services dominate most TV channels.

While Nepal is certainly not the largest recipient of remittances in overall quantity , Nepal has ranked around the fifth largest recipient country of remittances per capita for several years. (The quantity of remittances in dollars in Mexico, India and China far outstrip Nepal). Reported remittances currently account for nearly one quarter of the GDP, which is around $3.5 billion USD. Experts estimate that actual (reported AND unreported) remittance rates are 40% higher.

To be clear, I am no expert on international migration, nor the economic and developmental impacts of remittances. But – I’m very curious. So I pose the following critical question: Overall, is a culture of international migration and remittances a boost for a country’s development or a hindrance? 

I’ve spent a lot of time pondering this, and recognize that there’s no simple answer. I’ve re-written this piece numerous times in the last few months in attempt to have a single answer which I felt comfortable standing behind, and continually found my answer dissolve into nuanced complexities. And so I guess my simple answer is: it’s both – the remittance culture is both a boost and a hindrance to development. Why?

In the short term, it’s without question that remittances help to alleviate poverty, providing greater economic access to food and medicine and other basic needs. From an economic perspective more capital is almost always a good thing because it allows individuals to consume more, presumably to the betterment of their lives and to the betterment of the market. Furthermore, remittances usually remain consistent during economic turmoil and thus provide a stable income for recipients

But this alludes to my first shade of doubt: the increased purchasing power is to the betterment of which market? Considering Nepal’s proximity to that Goliath of manufacturing giants (China), the vast majority of consumable goods available here are imported. Yes, I know this is how trade works and that imported goods are not inherently a bad thing. But my concern is this: how much money is being spent on imported consumable goods instead of on internal investment – on things like education, infrastructure and entrepreneurship? From my (admittedly limited) observations, most recipients of remittances here are middle-class families who tend to spend the money in the following order: on extra food (to get larger and thus physically display their wealth), health care (many then develop diabetes), and on consumable luxury goods such as TVs, satellite service, alcohol and gambling. Not on investment. And, ironically, when they do invest more in their children’s educations, it’s usually only their sons, and it’s usually focused on improving his English so that he’ll be more competitive when he tries to move abroad…

Aside from education, it’s unclear how much remittance money individual Nepalese spend on personal investment. But to be fair, there are a lot of dis-incentives for investment here. Take manufacturing as an example. First, consider Nepal’s geographic situation: landlocked between China and India. Anything produced here must either compete with or find a niche independent from both countries’ huge manufacturing sectors or it will certainly be under-priced. Unfortunately, several industries that Nepal historically dominated (rugs and scarves) have suffered from corrupt business practices in India, which took credit for producing the quality goods. Second, consider Nepal’s internal geography and climate: steep mountains as far as the eye can see, with a limited number of paved “highways” which suffer from landslide damage during the three months of monsoon every year. Shipping isn’t impossible, but it’s tedious and expensive. Third, consider the state of Nepal’s government: borderline dysfunctional. Between archaic bureaucratic processes and corrupt officials, licensing is tough to obtain. Would you be tempted to invest under those conditions? My guess is probably not.

But the thing that makes me the most weary of the remittance culture, more than the lack of investment and more than the increased reliance on external markets – is it’s cost: the loss of the country’s young men and skilled labor to overseas employment. I guess my worries are summarized by a very familiar term: brain-drain. What is the opportunity cost of a generation of skilled workers fleeing the country? What is the impact on the families and communities missing young fathers? How can the medical services improve when the experienced medical workers leave? How will better dams and bridges and more seismically sound buildings be built with all the engineers leaving? And – who will be the next generation of leaders to stabilize the government and develop better policies? In fairness, not all of the youth and skilled laborers have left. Nepal’s capital, Kathmandu, appears to have a thriving youth culture. But the trend is clear: those with the opportunity to leave tend to take it.

I suppose that leads to a fairly sound answer after all. Yes, remittances contribute positively to development, in particular by assisting with poverty reduction. But they are certainly no replacement for internal investment and sound development policies that will improve the standard of living, increase viable economic opportunities – and potentially inspire more of the youth to remain.

What do you think?

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References:

• World Bank. “Migration and Remittances Factbook, 2011. Second Edition.” (2011)
• Migration Policy Institute. “MPI Data Hub: Migration Facts, Stats and Maps. Remittances Profile: Nepal.” (2011)
• Auxfin. “Nepal migrants and remittances report.” (2010)
• http://www.guardian.co.uk/global-development/poverty-matters/2012/jul/05/money-not-only-motivation-nepalese-migrants
• Migration Policy Institute. “Remittances and Development: Trends, Impacts, and Policy Options.” (2006)
• Kollmair, Michael, Diddhi Manandhar, Bhim Subedi, and Susan Thieme. “New figures for old stories: Migration and remittances in Nepal.” Migration Letters, Vol 3, No 2 (2006).