Migrant Remittances and Development Republic of Moldova - country experience

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Migrant Remittances and Development Republic of
Moldova - country experience

• Seminar
• Remittance flows from the Czech Republic and
  their development impact
• Prague, 24 February 2009
• Ghenadie Cretu, International Organization for
  Migration, Mission to Moldova

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Outline

• 1. Basic facts
• 2. Migration. Impact on development
• 3. Remittances an Overview
• 4. Remittances Impact on Economic Growth
• 4.1. Positive Impact on Economic Growth
• 4.2. Negative Impact on Economic Growth
• 5. Knowing remittances. Putting them to use
• 6. Policy Recommendations
• 7. Policy Instruments

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Basic facts International Organization for
Migration, 1951

• Managing Migration for the Benefit of All
• IOM principal International Organization in the
  field of management of migration
• Assists in meeting the growing operational
  challenges in the field of managing migration
• In-depth research and understanding of migration
  issues
• Harnessing the economic and social development
  potential of migration
• Upholding the dignity and well-being of the
  migrants

GROWTH GROWTH GROWTH
1998 2008
Member States 67 122
Operational Budget (USD, mln) 242,2 750
Field locations 119 400
Projects 686 1770
Operational staff 1100 5600
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IOM Moldova country strategy

• The IOM Mission in Moldova operates in supporting
  the country in managing migration for the benefit
  of all.
• IOM Moldova acts with its partners to
• Encourage the countrys social and economic
  development for effective management and more
  effective use of the benefits of migration
• Advance understanding of migration issues
• Protect the rights and dignity, as well as the
  prosperity of migrants.
• Main areas of activity
• Migration management
• Prevention of human trafficking
• Rehabilitation and reintegration of victims of
  human trafficking
• Labour migration and remittances
• Assisted voluntary return
• Migration and health.

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Basic facts - Moldova

• Area, sq. km - 33 843
• Capital Chisinau
• Population 2008, millions - 4.3
• Urban/rural distribution 46 / 54
• Total aid as proportion of GDP, 2004 (per cent) -
  4.5
• Adult literacy (per cent) - 99.1
• Life expectancy at birth (years) - 70.5
• GDP per capita, PPP (2008) - 2,502 USD (compare
  with Czech Republic 26,800 USD)

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Geographic location of Moldova
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Main economic indicators

• Inflation (2008)- 13,8
• Export - 1.79 billion f.o.b. (2008)
• Import - 5 billion (2008) trade deficit over
  3 billion (Jan09)
• Trade partners EU 51 , CIS 39
• Remittances (2008) - 1,65 billion (37,7 ratio
  to GDP)
• Unemployment (2007) 5,1 , 25 labor force is
  abroad
• GDP by sector agriculture (17,3) industry
  (21,5) services (43,3) (est. 2008)
• Labor force1.327 million (2008)
• Economy growth rates 2.1 in 2000, 6.1 in 2001,
  6.7 in 2002, 6.2 in 2003, 7.3 in 2004, 7.9 in
  2005, 3.1 in 2006, 7.3 in 2007 and 7.5 (est.)
  in 2008.
• GDP in real terms in 1996 constituted 36,0
  compared to 1989. In 1999 GDP was only 33
  compared to 1989
• The population income decreased to USD 318 per
  year in 1999

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Migration realities in Moldova

• In Moldova, total number of emigrants grew from
  fewer than 100,000 in 1999 to around 400,000 by
  the end of 2006. The total number of labor
  emigrants is now estimated at around 345,000
  (IOMs survey).
• Driving forces
• Pull factors saving for household investments
• Push factors absence of a job need to cover
  daily consumption
• Inter-country networks developed over time,
  facilitating migration

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Distinction of major migrant groups by
destination country and economic sector

• 1. CIS construction workers in the
  construction industry in CIS countries (mainly
  Russia, Ukraine) Predominantly male, from rural
  areas, relatively low levels of education
• 2. CIS other other workers in CIS countries
  (mainly Russia, Ukraine) Half are women, mainly
  from rural areas, considerably higher level of
  education
• 3. EU (EU25) main countries (Italy,
  Portugal) More than half are female, higher
  share of urban migrants, high level of education
• Moldovan migrants in Czech Republic
  10,000 permanent residents 2,000 other
  status 8,000 female-3,500, male-6,500
• 4. Other main countries (Turkey, Romania)
  Predominantly female, half from urban areas.

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Main migrant groups

• Labour migration profoundly affects the economic
  and social development of Moldova.
• As of mid-2008, approximately one quarter of the
  economically active population was occupied
  abroad.
• About 100,000 individuals have left Moldova
  permanently since 2006
• Of these, approximately 60,000 individuals
  belonged to households that completely relocated
  from Moldova to another country

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Legal and illegal migration
Illegal residence status has become more
widespread in CIS countries while the situation
has improved in the EU and other host
countries Illegal residence status puts migrants
at greater risk of arbitrary treatment by local
authorities, swindlers, exploitative working
conditions, etc. Migrants who stay in their host
country for an extended period often manage to
obtain legal status 65 of illegal migrants in
2006 became legalized by 2008
Illegality reduces benefits from migration, but
also the incentives for remaining abroad
permanently.
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Migration Impact on Development

• Positives
• Economic gain - remittances, investment etc.
• Labor market and employment opportunities abroad
  (enhanced mobility of labor force)
• Migration can empower women/other groups
• Impacts on social institutions - origin
  destination countries
• Migrants as development agents (human, social
  capital, skills, fostering innovation, progress
  and advancement)
• Diaspora as a source for economic and social
  development
• Return (brain circulation) can maximize
  developmental impacts of migration by transfer of
  skills
• Equalizing effects on income of origin countries

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Migration Impact on Development

• Negatives
• Brain-drain (loss of human capital, including
  highly qualified specialists)
• Social torn families, children left behind,
  weakening the social protection system
• Inflation impact on economy/pressure on currency
  exchange rate
• Increased inequality/disparity in incomes
• Creation of a tradition of migration
• Irregular migration harms inter-state relations
• Remedy a comprehensive migration policy needed
  at the national level, supported by appropriate
  legislations and implementing mechanisms

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Remittances broad trends

• In Moldova, remittances reached US 1.2
  billion in 2007 and 1.65 billion in 2008
  (National Bank of Moldova data on formal
  transfers data) ratio to GDP37.7, one of the
  highest in the world.
• Total sum of remittances (including via
  informal channels) is estimated at 2 billion in
  2008.
• Remittances have exceeded total exports and
  exceeded by 50 the merchandise exports (NBM,
  2008, QIII).

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Remittances data collection

• National Bank of Moldova aggregate estimates of
  remittances are based on balance of payments
• Balance of payments must add up to zero -
  plausibility check of estimates, particulary of
  remittances transmitted to Moldova as cash
  foreign exchange
• Remittances are calculated by adding two posts in
  the balance of payment compensation of Moldovan
  residents employed abroad transfers from
  migrants permanently residing abroad.
• Surveys that ask respondents about their income
  or remittances typically underestimate income
  flows (e.g. income and expenditures surveys like
  the NSB Household Budget Survey HBS).
• Understandably, people are reluctant to talk to
  strangers about their personal finances.
• Ex. in the 2006 IOM survey, of 1,020 households
  that said they received remittances, only about
  600 indicated an amount.

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Remittances Average remittances per remitting
migrant (IOM Survey)

• Average remittances in nominal US terms as
  indicated by respondents increased slightly.
• US 1,296 in 2006 US 1848 in 2008
• However, inflation in Moldova and the
  appreciation of the Leu have eroded most of these
  gains.

• Remittance levels strongly depend on the country
  the migrant is working in. They are highest for
  migrants in Europe and lowest for migrants in
  Russia or Ukraine

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Remittances transfer channels

• The use of formal transfer channels (money
  transfer operators, bank transfers) has grown
  further.
• Lack of information, complicated procedures,
• lack of trust in formal systems, lack of outreach
  in rural areas
• The share of migrants using primarily
• informal services (maxi taxi drivers,
• etc.) declined from 20.4 percent in
• 2006 to 11.8 percent in 2008.
• Furthermore, a large proportion of informal
  transfers involve migrants taking money home
  personally, rather than using informal
  third-party services (maxi taxi drivers, etc.).

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Remittances households dependence
1.3 million people (35 percent of the population)
live in households that receive remittances.
In 56,2 of households receiving remittances,
the transfers account for more than 50 of the
household budget (in rural areas the share is
58,3).
Remittances take a big share in the overall
income composition, 18 per cent.
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Remittances use

• Most remittances are used for consumption needs
• Yet, there are also signs that households with
  remittances invest more Whereas only 15 of
  households without migrants have savings which
  exceed US 500, this share is 29 for migrant
  households
• There are also signs that remittances promote
  financial sector development as more migrant
  households have a current account with a Moldovan
  bank (13 versus 8)
• Most of the households receiving remittances are
  saving, yet only 18.5 of these are saved in
  bank accounts and less than 7 percent, are used
  to finance business investment.

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Poverty impact of migration/remittances

• Migrant households are considerably less poor
  than non-migrant households
• The poverty impact strongly depends on the area
  of destination (largest for EU, smallest for CIS
  con)
• Remittances reduced the national absolute poverty
  rates by 11.3 percentage points

The impact is higher in rural areas, lowering the
poverty rates by about 13.6 percentage
points. On macro level, remittances produced a
decrease in poverty rates, as well as contributed
to wages growth
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Remittances Impact on developmentBeyond poverty
reduction

• The effect of remittances on development remains
  a widely debated issue
• Positive foster poverty alleviation, increase
  productivity and investments, promote economic
  development, augment national savings, ease
  foreign exchange constraints, improves the
  country credit rating and access to financial
  markets, covering the foreign trade negative
  balance, creation of new jobs, small business
  developed, bank deposits increased ease the
  credit crunch, multiplier effects simply by
  increasing households income, secondary demand
  effects (real estate)
• Negative create dependency, wealth disparities,
  currency appreciation, inflation, displace local
  jobs, higher import content of consumption,
  encourage further migration and may cause labour
  shortages, forced consumption because of lack of
  investment opportunities.
• Remittances alone do not lead to development and
  economic growth, and their impact depends on
  micro- and macro-level factors of the economies
  of host and home countries.
• Therefore, migration cannot be considered to be
  a universal solution for addressing all
  developmental problems.

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Remittances. Policy issues

• Key Problems
• - Private nature of remittances
• - Entrenched policy environment poses a problem,
  esp. in countries of origin
• - many remittance senders and receivers
  remain outside the formal financial system
  - Financial access and financial literacy
• Guiding Principles
• - Be cognizant of the importance of ending the
  dependence on migration and remittances
• - Do not regard remittances as the key
  instrument on par with traditional forces like
  exports and FDI
• Main Policy Directions
• Create a sound policy environment
• Reduce transaction costs
• Encourage productive use
• Improve data collection on remittances
• Because of the large role of remittances in
  reducing poverty at the household level, policies
  should not focus on migration prevention, but
  rather on helping migrants to maximise the gains
  from migration.

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Policy Recommendations by IOM. Moldovas
experience

• Main policy directions of the Government
• To create effective mechanisms for management and
  monitoring of migration flows
• To improve the reliability of migration and
  remittance data and the capacity of the
  government to collect, share and apply such data
• To improve the knowledge and capacity of migrant
  workers and their families to channel and use
  their remittances for productive investments
• To improve the linkages of the Government with
  Diaspora
• To improve remuneration of labour and a continued
  increase of state guaranties in this area
• To promote voluntary return migration and
  reintegration programs
• To create an enabling environment for SME growth
• To promote mobility of labour force/circular
  migration

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Policy Recommendations by IOM. Moldovas
experience

• Conclude circular migration agreements with the
  main destination countries, similar to the one
  that was recently reached between the EU and
  Moldova
• Certain professionals of Moldova to be offered
  facilitated access to labor market of interested
  EU member states
• Migrants return to Moldova upon the end of legal
  stay will facilitate his/her subsequent migration
  to interested member states and
• Circular migration can augment the positive
  effect remittances have on economic growth.
• Main challenge for Moldovan government
  advocating for policies that benefit migrants and
  Moldovan society as whole, while taking into
  account sensitivities in host countries

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Policies required to enhance the productive use
of remittances. Moldovas experience

• Encouraging the use of official transfer channels
  and increasing trust in banking institutions by
  improving financial literacy through
  public-private partnerships consumers need to be
  educated about existing remittances services
• Reducing informality, improving competition and
  reducing transactions costs by i) expanding the
  intermediation of banks, microfinancing agencies,
  credit and savings associations, post offices, in
  the remittances area and by ii) adopting new
  remittances-transfer technologies
• Improving the terms of the payment and settlement
  system for money transfers to reduce the
  remittances transaction costs
• Engaging diaspora in homeland development by
  supporting business investment plans and
  partnerships with Diaspora
• 5. Facilitating linkages between remittances
  and financial services (loan products linked to
  remittances e.g. mortgages savings products with
  attractive interest rates, easing of credit
  policies)

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Policies required to enhance the productive use
of remittances. Moldovas experience

• 5. Implementing migrant outreach policy,
  stimulating confidence about homeland and
  building migrant partnerships
• 6. Matching remittances with other funding
  sources and orienting them on community
  development
• 7. Creating favorable regulatory and
  macroeconomic environment
• 8. Facilitating increased investment of
  migrant resources in SMEs by improving the SME
  regulatory and institutional framework, offering
  tax incentives, one stop shops, entrepreneurship
  training
• 9. Improving data on remittances by
  expanding and improving remittance data
  collection practices, research, analysis,
  policies, and procedures
• 10. Improving the remittance providers
  services to the poor, including via new products
  and technology

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National Strategy Documents adopted following IOM
policy advice

• EU Moldova Action Plan (cooperation in justice
  and home affairs migration issues)
  implemented new instrument being developed
• National Return Action Plan
• National Strategy for Support and Development of
  SMEs for 2008-2011
• Mobility Partnership EU-Moldova

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National Return Action Plan

• Creation of incentives for return of Moldovan
  migrant workers.
• Main objectives
• Provision of information on the
  job/business/social reintegration opportunities
  in Republic of Moldova economic empowerment
  progr.
• Strengthening the links with Moldovan nationals
  abroad
• Provision of socio-economic reintegration
  services to returnees
• Developing entrepreneurship culture so as to
  attract remittances into the productive areas a)
  referring the beneficiaries of remittances
  towards the opportunities of launching a
  business b) providing assistance and consultancy
  on launching and managing small businesses.
• Enhancing the business environment and
  opportunities in rural areas a) granting
  methodological support and contributing to
  attracting remittances for setting of up small,
  poultry and livestock farms b) developing
  pilot-projects in rural tourism development, as
  well as other sectors, including projects for
  social infrastructure support (matching funds
  11) private-public partnership mechanisms for
  funding infrastructure objects
• 6. Concluding agreements with post-office
  administrations from the countries of destination
  so as to facilitate the implementation of the
  Electronic International Money Orders service
  developing and implementing the normative
  framework regarding monetary payment of the
  international money orders also in foreign
  currency (USD or EURO)

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National Strategy for Support and Development of
SMEs for 2008-2011

• Overall improvement of the legislative and
  normative framework that would be favorable for
  small and medium enterprises establishment and
  development
• Specifically on remittances
• Enhancing financial mediation within
  remittances transfer options
• Training migrants-users of financial-banking
  services regarding the provided services
• Building capacity of the micro-financing
  organizations and of the Savings and Credit
  Associations with respect to provision of
  remittances transfer services
• Involving the Post of Moldova in the system of
  remittances transfer and payment in national and
  foreign currency
• Setting up a scheme for loans guarantee based on
  remittances.

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National Strategy for Support and Development of
SMEs for 2008-2011

• Adopting new technologies for remittances
  transfer
• Setting up legal framework for facilitating and
  securing the remittances transfers through new
  technologies.
• Implementing a pilot project on money transfer
  banking services via cell phones
• Diversifying and improving financial services,
  increasing competitiveness and reducing the costs
  of these services (promoting account on account
  system, ATM machine remittances, internet
  payments e.g. PayPal)
• Developing and implementing the 21 Program for
  Remittances Investment
• Improving accuracy of statistics and studies
  regarding migrants and remittances harmonizing
  and adjusting migration study methods used by
  different involved institutions

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Mobility Partnership EU-Moldova

• Council of EU for JHA from 6-7 December 2007 -
  initiating the dialogue with the Republic of
  Moldova to launch a pilot mobility partnership
• Concept of mobility is becoming a key element
  for the development of the EU migration
  management strategies
• Mobility partnership represents an overall
  political framework
• Aim develop a balanced partnership with third
  countries adapted to specific EU Member States'
  labour market needs
• Broad, tailor-made and balanced agreement and
  include elements of mutual interest for Moldova
  and EU legal migration, fight against illegal
  migration, migration and development, circular
  migration
• The parties to a mobility partnership, on the EU
  side, include both the European Community and
  Member States willing to participate in and
  contribute to it. Czech Republic is part to the
  MP

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Mobility Partnership EU-Moldova

• Specifically on remittances
• Enhancing the cooperation with Moldovan
  communities abroad, strengthening the links with
  the diaspora and reaching out for its support
• Working on the financial sector to create the
  conditions for boosting the diaspora's investment
  in their home country through twinning projects,
  loan and transfer facilitation and targeted
  remittance schemes enhancing the development
  impact of migrant workers' money transfers
• Proposal by Romania together with the Veneto
  Region in Italy to design a Financial Instrument
  for Self-Employment and Small Business
  Development with a view to encouraging migrants
  to invest remittances, particularly in local
  communities, and to return to the Republic of
  Moldova.
• Proposal by Germany to extend the remittances
  website www.geldtransfer.de. launched as part of
  the G8 Conference on Remittances in late November
  2007 in Berlin.
• Proposal by Sweden to facilitate exchange of
  experience and study visits on development policy
  (including policy training on remittances).

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EC Aeneas Remittances Project

• EC Aeneas Project Beyond Poverty Alleviation
  Developing a Legal, Regulatory and Institutional
  Framework for Leveraging Migrant Remittances for
  Entrepreneurial Growth in Moldova
• Main activities, aimed at enhancing the impact of
  remittances on economic development by
  facilitating increased investment of migrant
  resources in SMEs
• Development of a National Remittances Programme
• Capacity Building for the Ministry of Economy and
  Trade
• Improving Remittances Data Collection
• Improving Financial Literacy of Migrant Workers
  and their Families
• Facilitation of Linkages of Remittances with
  Financial Services
• Building Bridges with Diasporas

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• Thank you!
• Ghenadie Cretu gcretu_at_iom.int