REMITTANCES AS DEVELOPMENT TOOL
5.1 CONCLUSION
CHAPTER 5
CONCLUSION and RECOMMENDATIONS
business community - merchants and industrialists could obtain hard currencies at cheaper rates from the formal institutions rather than be forced into the black markets.
Apart from the use of informal channels, the other reason for the variability in the figures of the flow of remittances from one study to another is that there is no convention definition. The inclusive and exclusive nature of these definitions of remittances creates some problems in analysing the collected data. As it could be evident from the few tables that were presented in the text, different studies show different results for the same period of a particular country. The Eritrean case is a good example. Therefore, it is difficult to know exactly what percentage remittances really contribute to a country's gross national product.
A large amount of the remittances sent by family members, is spent directly on consumption or related expenditures that supplement the living expenses of the recipient households. Hence, remittances as family welfare systems primarily create safety nets among family members. Small amounts are also spent on revitalizing community facilities and augment the government budget of the recipient country.
Although the majority of the theories attribute remittances to altruism - extended family concerns - there are micro- and macro-economic theories that explain the determinants of remittances to factors other than social networks. In addition, remitters, as they are primarily concerned by the well-being of their families, are likely to take considerable risk to support families and old communities during harsh economic situations. They are less risk aversive and are likely to continue to invest even at lower interest rates or low rates of return plus under unfavourable investment climates. In addition, the existence of trans-national communities creates the opportunities to develop feasible business enterprises that could exploit the five Ts. Hence, there are a number of projects related to the development of Tourism, Transportation, Transfer channels, Trade and Telecommunication in the country of origin and as well as in the host country.
It is a common practice to find traditional organisations - social and financial - among migrant workers. Many countries, therefore, have attempted to institutionalise the mobilization of the financial, technical and professional resources that the Diasporas have acquired from their newly adopted countries. In the history of Eritrea,
institutionalising the Diaspora is not a new phenomenon. During the struggle for independence, the people were made to organise in mass organisations and their efforts were directed to finance the cause. They were also encouraged to form associations to look after the conditions of the war-affected communities. Moreover, they were also motivated to come in person to partake in the armed struggle. The 1970s and 1980s mass organisations not only played an important role in this aspect, but they also went a bit further to form symbolic events that combine the diverse Eritrean public into a unified national identity.
The Government of the State of Eritrea recently established a commission - Eritreans residing abroad, which focuses on revitalizing these mass organisations (second time institutionalising) and to give them a boost in order to cope with the new developmental challenges the country is currently facing. The commission coordinates the Diasporas' efforts and works along with various organisations to enhance awareness about priorities and challenges facing the country and what measures should be taken.
Furthermore, the office of the commissioner attempts to maintain and enhance Eritreans' cultural heritage in the face of big melting pot of migrants host countries' cultures.
As a result, the Diasporas are in turn engaged in lobbying different projects of the government to the international bodies and NGO groups. Equally they are lobbying for the genuine cause of Eritrea on the border dispute with Ethiopia. They are also engaged in organising concerts and festivals to raise funds in order to give the country's development efforts an advance. Eritrea has benefited from its Diaspora population throughout the armed struggle for independence and still the majority continue to sponsor the reconstruction and development efforts of the Government. Hence, the Eritrean Diasporas participate in every way possible to primarily support their families and communities and then their country in general. They continue to send remittances in cash or in kind and invest in projects that are deemed to benefit Eritreans as a whole.
Whether the money is spent directly on investment, consumption of durable consumer goods or conspicuous ones, its impact on the economy is visible. The IMF report for the last ten years suggests remittance's contribution to Eritrea's GDP was averaged at 37 percent. This seems a little bit exaggerated when it is compared with table 2.2 and other
reports that put the figure around 19.68 percent. Although knowing the correct figure is necessary, it is often difficult for many reasons. Nevertheless the effect of remittance as a whole to the economy remains enormous. Besides, remittances' trickling down effect on the economy as whole is undeniable. If it is not more, it equals that of Mexico, 3:1.
Remittances, as they are believed to remain stable over a period of fifteen years, many of the developing countries started to incorporate them in their development plans (Ratha, 2003). Securitization of future flow of remittances using different financial instruments enables countries to void partially the implicit and explicit burdens of external financiers. Hence, in recent times many of the less developed countries including Eritrea have resorted to securitization of the future-flows of workers' remittances than to go after "risk" money from foreign banks.
Eritrea, in its first attempt to secure the future flows of remittances, used different financial instruments and was able to mortgage considerable amounts. Treasury bonds, certificate of deposits, and sale of government owned companies and shares to private investors especially to the Diaspora Eritreans all aimed at primarily boosting the cash reserves of the country. Similarly, permitting merchants to use Franco-Valuta, levying nominal income tax to the Diaspora and allowing one-time-free-of-import duties to returnee Eritreans are also other methods that are implemented to augment the country's hard currencies reserves.
Furthermore, by securing these future flows of remittances, the monetary authorities are not only indirectly curbing the use of informal transfer channels but may actually enable them to incorporate remittance flows timeously into the broader definition of money supply of the country. However, as still many remittances find their way to the country through the informal transfer channels; it is beyond the authorities' capacities to correct the inflationary impact of remittances. Especially the prices of land, other consumer durables and properties such as residential houses, have shot up beyond the means of the majority.
Remittances, as the human face of globalisation, are not totally free of risk. If proper measures are not in place, remittances could not only distort the domestic labour markets but they could also widen the income gap between the rich and the poor.
Remittances cause continuous influx of unskilled labour into the modern sector creating
social and economic burdens of unemployment in the urban areas while abandoning the rural agricultural sector productive resources. Likewise, remittances are also blamed for brain drain from the less developed to the more developed countries and for changing the consumption habit of the local people.