worker's remittances in mediterranean partner countries: the
TRANSCRIPT
Workers Remittances in Mediterranean Partner
Countries:The EIB’s work program
Pedro J. F. de Lima Development Economics Advisory
ServiceEuropean Investment Bank
Migration and Development ConferenceWashington DC, 24 May 2007
Workers’ Remittances: Workers’ Remittances: a lever for economic a lever for economic developmentdevelopment
EIB’s operational targets
Contribute to reduce remittances’ transfer costs, by promoting competition and disseminating information
Increased use of formal transfer channels, in particular through increased population access to banking services
Remittances as a tool for improved financial sector funding conditions
Remittances in Mediterranean Remittances in Mediterranean Partner Countries (MPC)Partner Countries (MPC)and EIB supportand EIB support
EIB has long standing relationship with Mediterranean countries
In Barcelona in 2002 the EIB received a new mandate (FEMIP) …
increase in finance (EUR2 billion per year), technical assistance, policy dialogue.
priority on private sector development
… reinforced in 2004 with the introduction of a special FEMIP envelope to enhance private sector lending (extended risk-sharing operations) and the creation of Trust Fund to support initiatives in priority sectors
For the 2007-2013 period, FEMIP mandate renewed at EUR 8.7 billion by the European Council to finance private sector, regional integration and socio-economic infrastructures.
Remittances in Mediterranean Remittances in Mediterranean Partner Countries (MPC)Partner Countries (MPC)and EIB supportand EIB support
In this context, the EIB launched a major study on remittances.
Purpose of study was to determine ways to improve the efficiency of workers’ remittances in Mediterranean countries
Eight Mediterranean countries targeted: Algeria, Morocco, Tunisia, Egypt, Jordan, Lebanon, Syria, and Turkey
Study on improving the efficiency Study on improving the efficiency of of workers’ remittances in MPCsworkers’ remittances in MPCs
Study on improving the efficiency Study on improving the efficiency of of workers’ remittances in MPCs: workers’ remittances in MPCs: Objectives Objectives
The study aimed to determine:
The origin of flows
The channels of transmission of remittances and associated costs
The impact of market imperfections in host and recipient countries on costs
The use of funds in recipient countries and impediments to their efficient allocation
Study on improving the efficiency Study on improving the efficiency of workers’ remittances in MPCs: of workers’ remittances in MPCs: MethodologyMethodology
Considerable economic Considerable economic importance to MPC’simportance to MPC’s
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0
25
50
75
100
125
150
175
200
Sub-Saharan Africa
Europe and Central Asia
South Asia
East Asia and Pacif ic
Latin America and Caribbean
MPCs
Billions of US dollars
Source: World Bank. Data for 2005 and 2006 are estimates.
Considerable economic Considerable economic importance to MPCs: importance to MPCs: remittances larger than FDI remittances larger than FDI and ODA combinedand ODA combined
0
5
10
15
20
25
1997 1998 1999 2000 2001 2002 2003 2004
0
5
10
15
20
25Workers' remittances and compensation of employees, received (US$)
Official development assistance and off icial aid (current US$)
Foreign direct investment, net inf low s (BoP, current US$)
Considerable economic Considerable economic importance to MPCs, but not importance to MPCs, but not uniformly across the regionuniformly across the region Remittances as % of GDP (2005), MPC countries
0
4
8
12
16
20
24
28
Lebanon Jordan Morocco Tunisia Egypt Syria Algeria Turkey
0
4
8
12
16
20
24
28
Source: World Bank
Not as stable as in other parts of Not as stable as in other parts of the world: oil dependence and the world: oil dependence and renewed migration flowsrenewed migration flows Remittances in USD dollars
0
1500
3000
4500
6000
7500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0
5000
10000
15000
20000
25000Jordan Lebanon Morocco MPC (r.h.s)
Remittances in MPC: Remittances in MPC: diversity of diversity of
sources…sources…
In Algeria, Morocco, Tunisia and Turkey, remittances from the EU account for 85-90% of total
For Egypt, Jordan, Lebanon, and Syria, Golf countries are the main source (EU accounting for 5-10% of remittances)
...but little variation regarding ...but little variation regarding useuse
Use of remittances in Mediterranean countries follows a pattern similar to that of other areas
Consumption is by far the largest item (50%) Health and education are another important use
(18%) Housing investment has some significance (14%) Business investment appears to be relatively
limited in most countries. Egypt and Tunisia appear exceptional (15 to 18%)
Improving the efficiency of workers’ Improving the efficiency of workers’ remittances in Mediterranean countriesremittances in Mediterranean countries
Market imperfections and information deficiencies
Exclusivity contracts for MTOs in post offices Lack of transparency on transfer costs (particularly as regards
exchange rate fees); Inadequate information regarding available transfer mechanisms
and associated costs, speed and reliability; Inadequate payment systems and limited usage of bank accounts in
Mediterranean countries. Accessibility to banking accounts for emigrants residing in the EU is
also limited and banking products are not sufficiently tailored for remitters, with few exceptions.
Imperfections result in high transactions costs, which could exceed 16 percent of capital sent.
Costs and flows per migrant not Costs and flows per migrant not too dissimilar across corridors…too dissimilar across corridors…
Spain-Morocco
Germany- Turkey
Germany- Lebanon
France- Algeria
Cost % 1-8.8 2.5-9.4 1.5-9.4 0.8-8.4
Total remittance $ /migrant/year
3515 1851 2688 2500
……but large differences as but large differences as regards use of banking sectorregards use of banking sector
Spain-Morocco
Germany- Turkey
Germany- Lebanon
France- Algeria
Main formal channel Banks/MTO Banks Mainly MTO Mainly MTO
% Informal 34 19 7 50
Total remittance $/migrant/year through banks
562 1037 376 150
Relatively efficient GER-TK channel, much less GER-LE or FR-AL
The FEMIP-EIB contributionThe FEMIP-EIB contribution
Promote efficiency and interconnecti
on of payment systems
Disseminate information, promote best
practices
Reduce transfer costs
Channel remittances
to formal sector;
increase access to banking
Information dissemination Information dissemination and promotion of best and promotion of best practicespractices
The FEMIP-EIB contributionThe FEMIP-EIB contribution
Banking and financial sectors
strengthening
Remittances contributing to improve funding of financial
institutions
Financial development
leading to economic
growth
Securitization of remittances Securitization of remittances flowsflows
Remittances as collateral for the issuance of bonds/notes (future flow securitization): banks transfer the foreign currency flows to an SPV set-up in a well-established financial centre.
Risk to international investors gets reduced:
Willingness to pay issues are settled
Transfer and convertibility risks are mitigated
Securitization of remittances Securitization of remittances flowsflows
Particularly appealing for countries with sub-investment ratings
In 2005, five SPVs issued more than 4 billion USD in Turkey securitized by diversified payment rights :
Technically, securitisation encompasses a number of financial transfers (SWIFT transfers MT-100, MT-102, MT-102+, MT-103, MT-103+…, corresponding to transactions such as cash-against-goods, cash-against-document transactions, letter of credit transactions, cheques, as well as workers’ remittances)
EIB support to first remittance EIB support to first remittance securitization operation in securitization operation in LebanonLebanon
Lebanon: a good candidate.
Large and stable remittance flows
Economy with sky-high public debt levels (200% of GDP) low sovereign rating (B3/B-)/high T&C risks
Deep and relatively sophisticated financial sector with a supportive regulatory environment (securitization law); however, heavy exposure to government debt
EIB support:
1. Catalytic role: bringing together the different players required to setup the deal
2. Buyer of SPV notes (50% of 100 million EUR)
3. TA support – first SPV seen as a public good, replicable by subsequent SPVs
EIB support to first remittance EIB support to first remittance securitization operation in securitization operation in
LebanonLebanon
Some difficulties:
1. Delicate political environment
2. SPV is relatively small => operation costs (which are mostly fixed) are relatively large
3. SPV rating? Enhancing mechanisms?
First SPV expected by end-2007
EIB support to first remittance EIB support to first remittance securitization operation in securitization operation in
LebanonLebanon
For copies of the report and updated information, check:
http://www.eib.org/publications/publication.asp?publ=244
Or contact
Pedro J. F. de Lima
+352 4379 7712
Workers Remittances in Workers Remittances in MPCs: The role of the EIBMPCs: The role of the EIB