Tweet

The economic implications of global remittances for SMEs

Guest post by: Norbert Knoll von Dornhoff

Article Overview: Immigrant entrepreneurs (most of them Micro-enterprises and SMEs are also ‘social actors’, who participate actively in transnational activities. For example, in the Dominican Republic, there are hundreds of small- to medium sized transnational enterprises (SMEs),including small factories, commercial/retail establishments and financial agencies. Such ventures are created and run by former migrants, who have returned to the Dominican Republic after acquiring capital and establishing ties with migrant communities in the United States, thus acquiring clients and investors abroad.

The economic implications of global remittances for SMEs

The author observed in the Republic of Hungary a similar trend after the change of the political systems in Eastern Europe. In Tajikistan, remittances from its cheap unskilled labour force abroad in countries like Russia, Kazakhstan, and Uzbekistan has helped the country rebound from the failures of a planned economy and government instability, contributing around 50 percent of Tajikistan’s GDP in recent years. For example, Somaliland, a breakaway region of conflict-devastated Somalia, receives an estimated $500 million a year in money sent home from abroad, four times more than the income from the main export, livestock, according to a study by the researcher Ismail Ahmed reported in the Financial Times. In the case of Mexico, remittances have become the country's second most important source of foreign exchange, after oil. The income is so large that Mexicans working outside of the country were able to gain the right to vote after threatening to withhold remittances.

MIGRATION AND REMITTANCES

Migrants make significant sacrifices to send an average of US$200 eight or more times per year to their home country. Several studies indicate that permanent migrants send about 15 per cent of their salary home, whereas temporary migrants may remit up to 50 per cent of their income. Cost of remittance transfers: Globally, the average cost of sending remittances was about 12 per cent of their value in 2004 (World Bank 2006, 137). However, costs may range from a low of 0.2 per cent to about 20 per cent, depending on the remitted amount, type of service used, destination and transfer location. Costs tend to be highest for small transactions, since most transfer services charge a minimum fee. A comparative study of the transfer costs to 11 low-income countries in Africa, Asia and Europe demonstrated that banks have become considerably cheaper than international money transfer companies over the last several years. The value of remitting through banks was 7 per cent, compared with 12 per cent for companies such as Western Union (Orozco 2003c, 9). A recent study of the corridors between France and the Comoros, Mali, Morocco and Senegal shows that money transfer costs are still quite high. The cost of transferring € 300 varied from €10 to € 29. Bank transfer was the cheapest, while transfer through Western Union was the most costly (BAfD 2007, 27).

RECOMMENDATIONS FOR ACTIONS

A resolution on international migration and development was adopted by the United Nations General Assembly in 2004. It calls upon all relevant entities of the United Nations system – and other relevant intergovernmental, regional and subregional organizations – to adopt policies and undertake measures to reduce the transfer costs of migrant remittances to less privileged Countries. Further, one item of the action plan to achieve the MDGs (Millennium Development Goals), agreed upon at the 2004 Group of Eight (G8) Summit, is to facilitate remittance support to families and SMEs. In 2007, the First Global Forum on International Migration was organized, with the participation of 155 countries.The forum is a global process designed to enhance the positive impact of migration on development (and vice versa) by adopting a more consistent policy approach, identifying new instruments and best practices, exchanging know-how and experience and establishing cooperative links among the various actors involved. Participating governments agreed that migration should not become an alternative to national development strategies in developing countries. It is important that migrants and recipient communities gain a better understanding of the various options for remitting and receiving. In particular, migrants and recipient communities need access to local financial institutions, not only because of the lower remittance costs, but also because of the greater opportunities to initiate or increase their savings and their access to other financial services such as housing loans. New technologies may also help lower the cost of remittance transfers and allow migrants and their families at home to send and receive remittances with greater ease. One of the popular techniques in the Americas is the use of automatic teller machine (ATM)/debit card transfer services, which are being offered by a growing number of private banks. When migrant workers enrol in such programmes, they are issued a debit card to be used by a designated person in the home country. The cost of this type of transfer can be less than half the cost of a traditional transfer.

Related Articles
  1.8 References: Economic Report on Africa 2007
  What can business and governments do to promote SMEs?
  Expanding the supply of finance through the non-financial private sector - Increasing SME Access to Finance: A Four Pronged Approach
  Restricted Access to Finance
  Facts about SMEs in Africa
  SMEs - SMEs and labour rigidity
  Leverage Subject Matter Experts
  SMEs - are African governments doing it right
  5.2.1 The MIT-SME section: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  SMEs in Africa - do interventions help SMEs
  Small- and Medium Enterprises: Better access to information management and knowledge networks
  SMEs – SMEs struggling in South Africa. Why?
  GLOBAL TRENDS OF ECONOMIC EFFECTS OF MIGRATION-Impacts on Small and Medium Enterprises (SMEs)
  Improving business conditions - Increasing SME Access to Finance: A Four Pronged Approach
  Poverty reduction by trade and production capacity building in less privileged economies
  SMEs - surviving the recession in Africa
  SMEs oil prices globalisation and SMEs
  1.6 International migration and remittances: Economic Report on Africa 2007
  SMEs - my PhD topic and African context
  WUSME: Towards a new strategy for crises prevention and to create more SMEs and jobs

Article Tags: goals, immigration, millennium, recommendations, remittances, sme



Related Forum Posts
Re: Alternative Divorce Franchise? - There are many ways of making money at this time of economic depression. There are many ebooks out now on how to manage the economic disasters that are happening now. If you think very well you can come out with an idea that will be a best seller
Re: Franchises in Texas... - You know I always hear about these "going green" products, but really their just saying that so that more people would buy the product because a lot of them care about the environment. But let me tell you something, global warming cannot be stopped and will eventually happen no matter how hard we will try. However we might not get an ice age like you hear everywhere, just weird weather like that time they had snow in Las Vegas couple of weeks ago! See global warming has already happened hundred of years ago and its suppose to happen again because of the cycle and then it should go back to normal like back then. Obviously were speeding it up and making the global warming worser but you wont be able to stop it. Its happening as we speak!
Re: Prospecting for a Franchise? Hold Tight - Franchise sales grew with the general economic growth in recent years, and are now contracting with the recent economic retraction. It is true that the best concepts will still have sales, but the ones most hurt at this time are those depending on financing for a large part of the development costs.
Re: Global Moderators - [quote:1l1khqcw]In granting global permissions, my only reservation falls back to the concern of being too quick on the draw to ban a suspicious member[/quote:1l1khqcw] You and Evan would still be the only ones with that power. I don't have banning or other admin powers at any of the other forums I moderate even though I am a global moderator.
Re: Prospecting for a Franchise? Hold Tight - Oh... I'm just full of cheerful news lately aren't I ? I'm trying to offset all of this miserable economic news with the occasional shot of whiskey. Problem is it wears off too quickly! I do try and step back and stay centered. I think what's happening here [i:1rx3472l]for so many of us[/i:1rx3472l] is a mystery. The economic and financial issues are so complicated that it's hard to make sense of it all. Anyone looking into buy into a franchise concept should take it slow.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Word of Mouth Marketing Tips Fuel Success

Living on The Edge of Chaos...

Multilevel Marketing: 4 Tips To MLM Success

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.