Remittances Flows

1
Remittances Flows Trends (The Egyptian Case)

• Heba Nassar

2

• Introduction
• I-Country context
• Throughout most of the 1990s, Egypt succeeded in
  implementing a stabilization program that managed
  to slow down inflation, reduced trade barriers,
  and initiated a privatization program .
  Consequently, economic performance improved over
  the 1990s.
• 2000/01 the stagnation of the economic reform
  process aggravated by a slowdown in the
  international economy and the impact of 9/11
  attacks.
• Economic reforms Floating of Egyptian pound,
  customs reform, tax reform and a more
  market-oriented macroeconomic policy. These
  reforms helped improve economic performance
  higher real GDP growth ( 6.7 in 2005/06), higher
  GDP per capita (US1,324) and tangible rise in
  foreign exchange reserves. By 2006, the pound has
  grown in value by 15 towards the dollar. This
  has initiated new confidence in the economy
  (remittances).

3

• Introduction
• I-Country context
• The share of private sector, one-half of total
  investment, while the share of holding companies
  20, while the share of government and economic
  entities declined.
• Strong increase in non-oil merchandise exports
  (up by 36.9), as well as oil exports (by
  47.7).
• Foreign debt and debt service remain low, with
  most debt long-term and concessional.
• The government extended subsidies, especially in
  energy sector. During the period 2001/02-2004/05,
  subsidies represented 17 of total government
  expenditures

4

• Introduction
• I-Country context
• Although Egypt is doing well in improving certain
  social and economic indicators, progress still
  needs to be made in many other areas.
• Poverty and Job creation remain major problems to
  be solved.
• (A) Unemployment
• Officially estimated at 9.5 in 2006.
• Almost 60 of the unemployed in Egypt are new
  entrants to the labor force.
• Unemployment rate among secondary school
  graduates is the highest (20.4 ) followed by
  university graduates (14.4).
• Female unemployment rate was 23 in 2006.

5

• Introduction
• I-Country context
• (A) Unemployment
• Several factors contributed to this difficult
  situation in the labor market
• Structural imbalances and inefficient policy on
  the supply and demand side, mismatch between
  labor market requirements and educational output.
• Layoffs are partly responsible for the relatively
  high rate of unemployment, despite national
  efforts at job creation.
• The private sector is still not large enough to
  absorb new entrants into the labor force.
• Egypt's growing population which may exceed 100
  million people by 2020 continues to place a
  burden on limited resources.
• Migration may be viewed as an outlet for growing
  labor force.

6

• Introduction
• I-Country context
• (B) Poverty
• The incidence of poverty has increased from
  16.7 percent in 2000 to 19.6 percent in 2004. It
  increased more significantly in rural Upper and
  rural Lower Egypt
• Poverty increase was driven by the decline in
  average per capita expenditure between 2000 and
  2005 in all regions and in overall Egypt. At the
  national level, real per capita expenditure
  declined from LE 2798 in 1999/2000 to LE 2604 in
  2004/2005.

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II-Word on Remittances

• Remittances are defined as the money transmitted
  from one place to another and is believed to be
  the most massive transfer generated by migration.
  Although remittances can also be sent in-kind,
  the term remittances, usually refers to cash
  transfers.
• Major countries receiving workers remittances
  include Mexico, Turkey, Egypt, Brazil, India,
  Morocco, Pakistan, Bangladesh, El Salvador,
  Jordan and Yemen.
• Total remittances accounted for around 0.39
  percent of world GDP between 1994 and 2004 higher
  than official development assistance (ODA).

8
II-Word on Remittances

• Unknown aspects
• Remittances transferred through informal
  operators or hand carried by travelers,
• Evolution of remittances across the life cycle of
  individual migrants , a U shape
• Net impact of remittances on labor markets
  between job destruction and job creation

9
III-Macroeconomic and Micro Effects of
Remittances

• III.1. A- Major Source of External Finance To
  Developing Countries
• The growing importance of remittances as a
  source of foreign exchange is reflected in the
  fact that remittance growth has outpaced private
  capital flows and official development assistance
  (ODA) over the last decade.
• Recorded remittance receipts were equivalent to
  about 6.7 of
• developing countries imports and 7.5 of
  domestic investment in 2004
• .

10
III-Macroeconomic and Micro Effects of
Remittances

• III.2. Improving Households Living Conditions,
  through
• Remittances can be a mean for improving household
  living conditions through
• A. Poverty Reduction
• Remittances affect poverty either directly
  through increasing the income of the recipient or
  indirectly through their effects on growth,
  inflation, exchange rates, and access to capital.
  
• B. Household Consumption Smoothing
• Poor households markets are vulnerable to severe
  declines in income from adverse shocks, and they
  may be forced to forgo income-generating but
  risky strategies. Studies of how remittances
  respond to adverse household shocks generally
  support the view that remittances provide some
  insurance.

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III-Macroeconomic and Micro Effects of
Remittances

• Remittances can be a mean for improving household
  living conditions through
• Raising Domestic Incomes
• Indirectly affect household income through
  changes to the labor supply of those remaining
  behind relaxation of working capital constraints
  that expand income from entrepreneurial or
  farming activities and multiplier effects on
  household income.
• . Encouraging Investments in Human Capital
  (Health Education)
• Most research identified expenditure on health ,
  education and housing as main expenditure areas
  for household with migrants..
• . Encouraging entrepreneurship
• There has been a marked shift from the belief
  that migrants are unlikely to establish new
  business enterprises in their countries of origin
  to the view that migration encourages
  entrepreneurship.

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V- Remittances of Egyptian Migrants

• 1- Macroeconomic considerations
• Egypt ranks third to sixth , among the countries
  which receive the highest amount of remittances
  from migrants abroad in the last 15 years
• Remittances of Egyptians abroad amounted US
  5034.2 million, making of GDP and resulting in
  4.8 of GDP.
• USA and Saudi Arabia are the main sources, which
  count for more than half the remittances flows to
  Egypt

13
V- Remittances of Egyptian Migrants

• The trend of remittances of Egyptian migrants can
  be distinguished over the following phases
• Phase I (1974-1984), remittances tended to
  increase at a high rate (30.8 annually), with
  the exception for 1981. This increase reflected
  the increase in oil prices and thus increase in
  the demand of Egyptian workers in oil Arab
  countries.
• Phase 2 (1985-1989)
• Since the mid eighties, oil prices tend to
  decrease and so oil revenues. As a consequence
  the demand for Egyptian workers tended to slow
  down and an inflow of return migrants emerge.
  Remittances fluctuated showing a decreasing
  trend. (-3.6 annually). Restrictive measures
  reduced the number of projects and thus the
  number of employment opportunities. Gulf
  countries imposed taxes on immigrants.

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V- Remittances of Egyptian Migrants

• Phase 3 (1990-2001)
• With the exception of the years 1992 and 1993,
  the data show a stable, but slightly decreasing
  trend in remittances. The decline is attributed
  to the fall in oil prices in the Gulf countries
  that represent the major destinations for
  temporary Egyptian migrants. Poor exchange rates
  and general economic conditions in Egypt.
  Remittances declined during (1992-2001) at 8
  annually.
• Phase 4 (2000/2001-2005/2006)
• Remittances of Egyptian migrants have increased
  during the period (2000/01-2005/06) from 2843
  million dollars in 2000/01 to 5034 million
  dollars in 2005/06. The value of remittances
  increased at 12.1 annually. Most of this
  increase took place in the last two years
  (2004-2006) due to improvement and stability of
  the value of the Egyptian pound upsurge in oil
  prices .

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V- Remittances of Egyptian MigrantsRemittances
2000/01-2005/06- US million
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IV. Remittances and macro-indicators
(2000/01-2005/06)

• A comparison was made between remittances and all
  sources of foreign exchange
• Exports, Suez Canal dues, FDI, travel and tourism
  receipts, petroleum exports, official transfers
• Remittances after Suez Canal dues are the most
  stable sources of external sources with the
  exception of Suez Canal dues, followed by travel
  and tourism receipts, exports of goods, official
  transfers, petroleum exports and FDI over
  1992-2006

17
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV-A- Relative importance of Egyptian Exports of
  Goods with respect to exports

18
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV-A- Relative importance of Egyptian Exports of
  Goods with respect to exports
• The importance of remittances as a source of
  external financing versus exports of goods tends
  to decline. This is due to the tremendous
  increase in the Egyptian exports in the last two
  years in addition to the increase in the price of
  oil in year 2006-2007, the reform measures
  adopted in the tariff system and the Quiz impact
  on export to the United States of America
• Exports increase more rapidly. Total exports
  increased at 21.1 annually during
  (2000/01-2005/06), remittances increased at 12.1
  annually.
• Exports of goods became a more stable source of
  external financing than remittances during
  (2000/01-2005/06).

19
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth compared to export growth rate
  (2001/02-2005/06)

20
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV-B Petroleum Exports
• Petroleum exports are considered the largest
  single commodity exports and one of the four main
  sources of foreign currency flows to Egypt.
• While remittances were around double the value of
  petroleum exports in 1993/94, they became less
  than half the value of petroleum exports in
  2005/2006.
• The value of petroleum exports increased at 31.2
  annually during (2000/01-2005/06), more than 2.5
  the annual growth rate of the remittances.
• However, it is found that remittances were a more
  stable source of external financing comparing to
  petroleum exports.

21
IV. Remittances and macro-indicators
(2000/01-2005/06)
22
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth compared to petroleum exports
  growth rate (2001/02-2005/06)

23
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV.C Suez Canal Dues
• The value of remittances exceed that of Suez
  Canal dues during the period (1993/94-2005/06).
• The importance of remittances as a source of
  external financing via a vis Suez Canal dues
  tended to decrease during (1999/2000-2003/2004).
• In the last two years and as a result of the
  upsurge in the value of remittances, the
  importance of remittances vis a vis Suez Canal
  dues tended again to increase.
• Suez Canal dues are the most stable source of
  external financing. However, Suez Canal Dues tend
  to decrease at a decreasing rate in the last two
  years

24
IV. Remittances and macro-indicators
(2000/01-2005/06)
25
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth comparing to Suez Canal Dues
  growth rate (2001/02- 005/06)

26
IV. Remittances and macro-indicators
(2000/01-2005/06)
27
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV-D- Tourism Revenues
• Remittances used to be a more important source of
  external financing than tourism receipts in the
  last decade.
• In the last two years, due to the upsurge in
  recorded remittances and the fluctuations in
  tourism revenues the ratio of remittances to
  tourism revenues tend to increase from 54.8 in
  2003/2004 to 69.6 in 2005/2006.
• During (2000/01-2005/06), the growth rate of
  tourism receipts (10.9) was slightly higher than
  that of remittances.
• Tourism receipts are one of the most unstable
  sources of external financing, as they are
  strongly connected to regional political
  circumstances

28
IV. Remittances and macro-indicators
(2000/01-2005/06)
29
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth comparing to Tourism Receipts
  growth rate (2001/02-2005/06)

30
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV.E. Net official Transfers
• Remittances value was more than fourfold the
  value of net official transfers in 1993/1994.
  This gap barely changed until 1999/2000.
• Remittances as of net official transfers
  decreased to slightly more than threefold in
  2003/04.
• In the last two years, it increased to around
  nine fold the value of net official transfers
• During (2000/01-2005/06), the net official
  transfers decreased at an increasing rate
• The value of net official transfers is obviously
  unstable and was subject to a lot of fluctuations
  during a relatively short period of time
  (2000/01-2005/06).

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IV. Remittances and macro-indicators
(2000/01-2005/06)
32
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth comparing to Net Official
  Transfers growth rate (2001/02-2005/06)

33
IV. Remittances and macro-indicators
(2000/01-2005/06)

• IV-F Foreign Direct Investment
• Remittances as a percentage of FDI were
  increasing up till 2003/2004. Remittances were
  more than double the FDI inflows in 1999/2000,
  increased to more than sevenfold the FDI inflows
  in 2003/2004.
• During (2000/01-2003/04), the annual growth rate
  of FDI witnessed a lot of fluctuations. FDI
  decreased at 7.2 annually during this period
  while remittances increased at 1.8 annually.
• The value of FDI is obviously unstable and was
  subject to a lot of fluctuations during only 3
  years while remittances growth was far more
  stable specially during these three years.

34
IV. Remittances and macro-indicators
(2000/01-2005/06)
35
IV. Remittances and macro-indicators
(2000/01-2005/06)

• Remittances growth comparing to FDI growth rate
  (2001/02-2003/04)

36
IV. Remittances and macro-indicators
(2000/01-2005/06)

• V-G- Remittances as of GDP (2000/01-2005/06)
• In Egypt, remittances tend to be an increasing
  percentage of GDP.
• Analyzing the relative importance of remittances
  of Egyptian migrants as of GDP, Investment,
  Overall Balance and Net International Reserves.
  It is indicated that on average the value of
  remittances were during the last decade around
  4.5 of GDP, 24.9 of total investments and 19.5
  of net international reserves, quite a
  significant share of major macro variables
  indicating its relative importance as a major
  source for foreign exchange.

37
IV. Remittances and macro-indicators
(2000/01-2005/06)
38
2- Micro-level considerations How Remittances
are Spent in Egypt? Improving Households Living
Conditions and poverty alleviation

• The Effects of International Remittances on
  Poverty, Inequality, and Development in rural
  Egypt, was examined by Adams, Jr.,1991in rural
  Egypt, The study is based on a survey of 1,000
  households conducted in 1986/87 in three villages
  in Minya Governorate.
• International remittances are shown to have a
  small but positive effect on poverty. The number
  of households living in poverty declined by 9.8
  percent when predicted per capita household
  income included remittances.
• A large part of these funds are used for daily
  expenses such as food, clothing and health care.
  A small percentage of remittances are used for
  savings and productive investments, i.e. for
  activities, which can generate income and
  employment.

39
2- Micro-level considerations How Remittances
are Spent in Egypt? Improving Households Living
Conditions and poverty alleviation

• Using the set of data of the Social Capital
  Survey in Egypt 2004, the sample was divided into
  two groups of households. The first group
  receives remittances and the second group does
  not receive remittances.
• First a Standard of Living Index is constructed
  as a broader measure of living conditions.
• Second in an attempt to assess the relationship
  between social capital, the study has designed a
  social capital index.
• Finally a basic needs index was constructed to
  address the availability of resources to cover
  the five main basic needs, shelter, nutrition,
  housing, health and education.

40

• Social Capital index trust towards community,
  community participation, political participation,
  given a weight of (4)2-satisfaction with life
  and conditions, given a weight of
  (2)3-involvement with children in the community,
  
• Standard of Living Index
• per capita income. per capita expenditures, an
  index of economic security/vulnerability, an
  index of housing conditions, and an index of
  affordability of basic need

41
2- Micro-level considerations How Remittances
are Spent in Egypt? Improving Households Living
Conditions and poverty alleviation

• Households, who receive remittances have a
  relatively higher mean for standard of living
  (30.05 vs 28.51) and basic need index (6.6 vs.
  6.014) than the households, who do not receive
  remittances.
• The social capital index for households, who
  receive remittances is lower than the value of
  index for households, who do not receive
  remittances (0.58vs.0.61). Our interpretation for
  that is that because these households are better
  off their involvement with the community is not
  so much needed.
• Remittances can form a safety net for
  households, as poverty incidence is far lower for
  households, who receive remittances than
  households, who do not receive remittances (10.78
  vs. 20.67).
• Households, who receive remittances have less
  difficulties in spending on food (88.82) vs.
  households who do receive remittances (81.13).

42
2- Micro-level considerations How Remittances
are Spent in Egypt? Improving Households Living
Conditions and poverty alleviation

• The ratio of households, who have an income
  sufficient to cover their emergencies is higher
  among households receiving remittances than among
  other households(60.27 vs.58.81).
• Migration has a positive impact on receiving
  services such as educational and medical
  services.
• Households, who receive remittances do not resort
  to financial aid as a coping strategy for
  difficulties as much as the other group of
  households.
• In comparison to households, who do not receive
  remittances, financial reasons, such as high
  costs of education, health services and increase
  in prices, are not the main causes for worries
  for households, who receive remittances. They
  worry relatively more for employment
  opportunities.

43
2- Micro-level considerations How Remittances
are Spent in Egypt? Improving Households Living
Conditions and poverty alleviation

• The relative percentage of households, who have
  an income sufficient to cope during emergency is
  higher for households who receive remittances
  than for the other group of households
  (8.8vs.6.9).
• Networks are key intermediates in migration,
  which operate in both directions. Migration is
  considered as an important livelihood option from
  two perspectives. The financial issues,
  remittances, and the second perspective focuses
  on migration as an exit option from any
  vulnerable structure.

44
2- Micro-level considerations How Remittances
are Spent in Egypt? Expenditure between
consumption and investment at the micro level

• According to Adams study, expenditures on housing
  dominate the category of durables.
• Once-abroad migrant households in this study also
  showed a higher propensity than nonimmigrant to
  allocate expenditure to investments such as
  agricultural equipment, vehicles, commercial
  enterprises (stores), and especially land.
• These findings are supported by other studies,
  which depend on a survey that covers both rural
  and urban areas. The main uses of remittances
  are
• -Housing
  -Investment in Projects

45
2- Expenditure between consumption and
investment at the micro level

• Concerning the use of remittances in Investment
  in Projects, it was noted that
• a-Remittances in addition to the managerial
  experience obtained abroad have a positive effect
  on the emergence of new entrepreneurs who invest
  in and run new projects
• b-Return migration has a positive significant
  influence on the value of capital invested.
• c- Returnees enterprises engaged in services
  activities is twice that of stayers. Non-migrants
  tend to be concentrated in trade activities.
• d-Returnees tend to invest more in the formal
  sector.
• e-Returnees projects tend to create more
  employment opportunities
• f-Returnees projects are regionally biased
  towards urban areas

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Futre Considerations

• Studies should introduce appropriate, financial
  and organizational policies on provision of
  necessary information to both remittance senders
  and receivers.
• Studies should focus on the improvement of
  remittance services, to reduce leakages in the
  transfer process and the introduction of
  market-conforming investment opportunities to
  increase the development potential of remittances
  .
• More in general, issues such as the improvement
  of the overall investment climate, securitizing
  remittance flows, ruling out taxing remittances,
  introducing tax referrals for retirement and
  pension plans, increasing transparency and
  providing incentives to channel remittances into
  development projects are all important policy
  measures which need further studies