(JollofNews) – Gambians In The Diaspora Are Contributing Significantly To The Country’s Development. Isn’t It Time To Start Reporting Remittances In The National Budget?
The money send back home by Gambians in the diaspora have helped to remove a dictator from power, change the lives of migrant’s Families and accelerate economic growth. The impact that remittances is having in the country’s economy can no longer be ignored.
At a time when the Gambia’s economy continued to face many challenges including unprecedented debt level, gaping deficit and rising youth unemployment; there have been a sharp increase in migration and remittance payments. Yet remittance flows into the economy are heavily underreported and still remain in the backwaters of academic study.
The flows through informal channels are not captured and if the substantial unrecorded flows were estimated and included in the country’s budget, the documented benefits would be even greater. It would have positively impacted the huge domestic debt and significantly reduced the chronic deficit reported every year since 2008, thus fostering a more economic stability for the country
One fundamental reality is often overlooked, the important role that Gambians abroad played in dethroning one of Africa’s most brutal dictator. Through their contributions, they helped to bring about a change of government in the country which would not have been possible without the massive funds that was successfully mobilized when the coalition parties desperately needed money to fund their campaigning during the 2016 Presidential election. Although many were denied to vote, they responded massively and literally voted with their wallets. That is why it is safe to say that the fate of this country’s economy is largely depend on migrant’s remittances.
Economic Benefits
According to IFAD and World Bank reports, the total for remittances in 2016 reached a record of almost $ 180 million (D8.640 billion) contributing almost 22% of GDP. Remittances are important at both the macro- and micro- economic level. At the national level, it have a substantial effect on the balance of payments and on foreign exchange revenues. It accelerate economic growth and plays a vital role in providing potential source of investment capital for both physical and human capital development thus becoming more important sources of finance and investment, it had arguably outpaced receipts from tourism and agriculture, the mainstay of the economy.
For many households and relatives, the money that Gambians working abroad earned and sent home have helped to transform the lives of the families that the migrants left behind. Where some migrant families used to live in dilapidated houses, now they live in newly built cement houses with satellite TV antennas glittering on rooftops, where candles used to light up the nights in the towns and villages that migrants came from, now there are generators and solar panels. Where many smallholder businesses were closing down due to limited access to capital and goods, now many individuals have open up shops selling containerized second-hand goods, used cars, sofa furniture and other classic household goods shipped by migrants residing in Europe, Asia or America.
There is a strong nexus between remittances and international migration. While the dispiriting effect of youth unemployment in the country is a ‘powerful driver’ for international migration, the improvements in the lives of those who make it to Europe or America also provide powerful incentive for young people to risk their lives for the chance of a better lives for themselves and their families back home. Since talk of curbing illegal migration, whether across the dangerous seas or not, have grown louder in Western government circles, the increase in the number of youths who are ready to put their lives on the line to make it to Europe have turned the volume up still more.
State-owned Enterprises Are Also Benefiting From Remittances
Apart from the money they remit to purchase durable goods and pay for school fees, remittances also hugely benefit some of the State-Owned Enterprises (SOEs). Whether it is the money they send directly to family members to perform the Hajj or the endless phone calls they are making back home passing through the international gateway (incidentally one of the highest in the region) translating into massive revenues for GAMTEL or the unprecedented increase of containerized durable goods and used cars shipped through our ports or the excise duties these goods attract translated into huge revenues for GRA; Gambians in the diaspora continue to contribute effectively to development.
Changing The Calculations
Measurement of the effects of remittances on the economy is notoriously difficult as it requires estimation of economic activity that is deliberately hidden from official transactions. If remittances can go up to 22% of GDP how come they are not included in the calculation of GDP? If you use incomes to calculate GDP as in the Gambia, you only add those incomes that are made from the production of goods and services. Since remittances are basically treated as transfers they are not included. But, as some economists argue, if the remittances are deposited in banks as fixed deposit earning income or invested in properties for rent, then they do enter the GDP as part of ‘investment’.
Depending on what approach this government is using to measure GDP which is the estimated value of the total worth of a country’s production and services, within its boundary, by its nationals and foreigners, calculated over the course on one year; many governments continue using this formula:
GDP= C + I + G + (X-M), where
C: Consumption
I: Investments
G: Government spending
X: Exports going out of the country
M: Imports into the country
This measure is needed to see the strength of a country’s local economy. The critical word here is local. While remittances can be a source of GDP growth by increasing household consumption, it does not directly add to GDP. However, it does affect GNP.
Gross National Product (GNP) which is an estimated value of the total worth of production and services, by citizens of a country, on its land or foreign land, calculated over the course of one year. Therefore, the formula for GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) – (Net Payment outflow of foreign assets).
There are various ways of calculating GNP numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents, interest, profits, non-income charges, and net foreign factor income earned. The three methods yield the same result because total expenditures on goods and services (GNE) is equal to the value of goods and services produced (GNP) which is equal to the total income paid to the factors that produced the goods and services (GNI).
Joseph Eugene Stiglitz, an American economist and a professor at Columbia University, says that If economic activity occurs in the country but the income from this activity accrues to foreigners, it will still be counted in GDP but not in GNP as He says that GNP measures the income of the people within the country whereas GDP measures economic activity in the country. Therefore, he argued for GDP as the primary measure of economic progress supplanting GNP. He cites the example of privatized mining. Often the state gets a royalty of 1-2% but the income from privatized, foreign-owned mines accrues largely to shareholders.
It’s Time To Bring Remittances Into The Light
After so many years of government ineptitude and economic mismanagement resulting in a wasteful expenditure, severely depleted domestic foreign reserves, mountain of domestic debt and a persistent deficit; acute austerity measures and proper accounting for migrant’s remittances could improve the economic wellbeing of the people of this country. The main challenges remain how best to assess the impacts of remittances and how to design policies that facilitate the transmission and productive use of remittance flows while taking into account the idiosyncrasies of the country. Possible policies range from easing capital controls to reforming immigration policy.
The purpose of this write up is to stimulate and inform discussions on the role remittances play in the economy. By exploring the link between remittances and development, government could design appropriate policy interventions to boost remittance flows and raise their impact on development. It is time to take remittances seriously and bring it into the light, not least for its impact on the national economy.
By Dr. Alieu Faal
Good analysis. The monies we are sending back home must be reported. After all, we are Gambians.
I like Dr Faal’s generous and concise analysis and economic common sense. The tax should be dropped on these remittances forthwith, leaving Gambian families freedom of choice and local investment. Well done to Gambians and the contribution to western economies too.
Most of the bureau de change only exist to receive transfers in dollars or pounds and pay out using very low exchange rates, cheating remittance receivers thousands of dalasi. That’s why you see them spreading across the country outnumbering the local fula and ‘narr’ shops. Government intervention is needed to peg the minimum exchange rate they can use to avoid ripping off the poor people who desperately are in need of every butut they can get to meet the high cost of living.
Thank you Dr Faal the article is brilliant.
That’s a very correct summation Mr Bojang; Some thieves were nice suits’ and smile unconvincingly.
“wear”
Bojang and Scales arguments do not add up. Bojang for more regulation or Scales for more deregulation of the foreign exchange market. Doesn’t make sense to me to read Scales qualifying Bojang’s input as convincing.
Kinteh(Kemo) if you can tell us anywhere in the financial centers in the world where there is no regulation pleeease let us know. Have you ever sent money home? if you have, you will be annoyed with yourself if you know the exchange rate that the bureaus are using to pay out. Imagine sending $1,000 at current rate of D47.50 (D47,500). When the beneficiary goes to the bureaus to receive the money he(she) will be paid at a rate of D41.50 (D41,500). Who pocket the difference of D6,000? Of course, the bureaus. This is why it is important to put a limit on the rates these bureaus are using to payout monies that do not belongs them. They are only acting as front for the banks. Just walk into any of them and ask to send money abroad they will tell you that they are not allowed to remit money outside the country. If remitting moeny outside the country can be controlled, why not setting a threshold on how low they can go to rip off the recipients.
All charges related to sending money home are paid for by the sender. It’s now a common practice to charge very low rates below the official rate of the dalasi in the markets.
De-regulation means competition. Competition means lower prices. Whenever Government steps in to fix currency exchange rates, or pump money into the economy {quantitative easing} or to ameliorate lending rates, inflation and prices rise and growth stalls. The value of money declines as does it spending power.Every business will always try to increase profit margins. But when competition is full on, profit margins are squeezed. This gives a boost to the consumer. I cannot see why competition appears absent on the high street ? Sometimes some companies agree to price fix or enter a cartel. In most countries such activities are illegal attracting heavy fines or worse. When it comes to taxation, this is a double whammy for remittances, as tax is paid in the host country on wages. I have known many African Immigrants in the UK. Without exception,,, the first priority of them all was to make regular money transfers home. Even at the expense of their own needs to pay bills and survive. This is something most British people find difficult to understand. The other difference I found difficult to overcome was the difference in eating habits and diet. I always stock up on rice and fish, and chilli peppers and spices, just to play safe. You could do worse than to read Adam Smith, for understanding deregulation of government and tariff free trading and empowerment of the citizen and problem solving.
We need to control the number of outlets paying out remittances to help the recepients realize better value for me.
There is absolutely nothing wrong with international money transfer; It is quick secure and helpful. It should be the prerogative of the Central Bank to ensure the fair competition regulations are monitored to ensure rates are free of any manipulation. One way to ensure competition would be for all vendors to be compelled to publish their rates and charges. Then you would see charges tumble.
The same should apply to Bank lending/ loan rates.
You can not be further from the truth, Mike. The unsuspecting customers should be protected.
I heard that it’s more expensive to send remittances to Africa than anywhere in the world. So government must intervene to cut down the costs associated with the transfers to help many who depend on remit ancestors.