According to the latest World Bank report, total remittances of Arab expatriates working in the Gulf region and abroad are forecast to reach $24.7 billion by the end of 2006, up 5.2 percent on last year’s level of $23.5 billion. These figures account only for remittances sent home through formal channels, mainly banks, while informal channels such as cash carry and the lightly regulated wire transfer agencies (e.g. Western Union) are equally important and if accounted for could well increase total remittances by 50 percent.
The Middle East region is expected to be the 5th largest recipient of remittances this year, while Latin America will top the list with $53.4 billion, followed by Asia and the Pacific region with $45.3 billion, and South Asia with $35.7 billion. Lebanon is the largest recipient of remittances among the Arab countries with an estimated 2006 figure of $5.2 billion, followed by Morocco ($5.1 billion), Egypt (3.3 billion) and Jordan ($2.8 billion).
On the other side of the equation, Saudi Arabia is the second largest source of remittances in the world after the US, with an estimated annual outflow of $16.2 billion. This accounts for 60 percent of the $27 billion remitted annually by expatriates working in the six Gulf states. The second largest source of remittances in the region is the UAE accounting for 16 percent of the total, followed by Kuwait, Qatar, Oman and Bahrain.
The majority of Arab expatriates have direct family members or relatives left behind in their respective countries that they support. This raises the disposable income of individuals receiving remittances, encourages additional consumption and boosts economic growth of the home countries. Remittances is the most important source of foreign exchange reserves to the labor exporting countries of the region and are considered to be the least volatile. While capital flows and direct investment tend to rise during favorable economic cycles and fall in bad times, remittance tend to be less volatile and mostly growing over time. Unlike development loans, remittances do not come with a liability or an obligation to pay interest. They are sent directly to the people for whom they are intended and thus cannot be squandered by the government.
Besides boosting consumption and growth in the home countries, remittances are a source of finance for small businesses, education and housing. The boom in the real estate and housing sectors seen in the region’s labor exporting countries during the past few years has been fueled, at least partly by capital inflows from expatriates working in the Gulf. Expatriates have also been active in the stock markets of their home countries, buying shares of existing firms, as well as, contributing to the establishment of new ones. In the banking sector, remittances account for around 40 percent of total foreign currency deposits in countries like Jordan, Lebanon and Egypt. Most of these deposits tend to be stable. New customers who open accounts at a bank for remittance purposes usually bring a host of other businesses later.
We expect remittances of Arab expatriates working abroad to maintain their uptrend in the foreseeable future. The economies of Saudi Arabia, UAE, Kuwait and the other Gulf countries have been growing at high rates in the past four years and are forecast to continue to do well in the years ahead. The demand for Arabic speaking labor in the Gulf especially in such growth sectors as telecommunications, information technology, medic, education, finance, training, consulting and management among others is likely to be on the rise in the years ahead. The number of new university graduates in Jordan, Lebanon, Egypt and other labor exporting countries of the region is projected to far exceed employment opportunities in their respective domestic markets. For the new graduates, the Gulf countries with their relatively high compensation and remuneration packages remain their first choice of employment.
GCC’s population could rise from 36 million in 2005 to 50 million in 2015, to support the region’s booming economic growth conditions. Increasingly more long-term professional migrants with the right to buy property and shares will be residing in the Gulf countries creating demand for all kinds of services (education, health, banking, travel, investment, etc.), and changing the structure of the region’s consumer and financial services market.
Some would argue that the existence of a large number of expatriates is a symptom of the failure of the labor exporting country to generate enough employment opportunities to absorb all those entering the labor force. Yet expatriates working abroad may also be looked upon as a sign of success. Their ability to find jobs in the competitive markets of the Gulf reflects their qualifications, their knowledge of the Arabic language and their familiarity with the local culture. It is well documented in development literature that those who choose to leave their home markets tend to be the risk takers and the ones looking for better life and work conditions.
The remittances that these expatriates send back home have become an important source of external funding and have greatly affected the labor exporting countries’ income and consumption levels. For example, Jordan’s gross national product (GNP), which is the income generated by nationals inside and outside the country is 25 percent higher than the income generated domestically (GDP) due to the sizeable amount of remittances transferred by Jordanian working aboard.
There may also be economic cost associated with reliance on remittances. Like any unearned income, remittances may discourage those who reserve them from seeking productive employment opportunities. Remittances derived mainly from expatriates working in the Gulf had in a way “petrolized” the economies of the Arab labor exporting countries making them also dependent on cyclical oil prices. Strengthening economic ties with the Gulf countries through remittances, capital inflows, regional tourism and exports to a booming Gulf market should be looked upon as an opportunity and a diversification play rather than a threat. In the long run, the benefits to the labor exporting countries would far exceed the shortcomings of losing skilled labor.
Some also worry that remittances are earned not only by poor migrants but by the exporting country’s most productive or essential workers (e.g. engineers, bankers, doctors and skilled labor) who supposedly should be giving back directly to their home country. But that is surely their choice, and if they can earn more abroad, it would not only be beneficial to them but to their host country, as well as, to the people back home who receive remittances.
(Henry T. Azzam is founder & CEO of Amwal Invest.)
