Remittance Sub Team Proposal

Justification and Background

Migrants have a lot to put forward remittance to their homelands, from knowledge to money. It is often the latter has an easier way finding its way back to percolate through the borders of nations, as the former requires the physical mobility of individuals. Diffusing remittance money has remained one important stream of revenue for the governments and peoples of developing countries. Over 192 million migrants across the world actively remit money back to their country of origin. Their net remittances amounted to be 414 billion dollars, out of which 316 billion dollars went to developing countries in 2010. Africa's share from total remittances flows to developing countries ranges between 40 billion dollars and 50 billion dollars annually originating from 30 million adults working in the developed world (World Bank 2010). It is worth noting that the World Bank estimate is based on formal transfers and hence is bound to underestimate the actual size of remittances.

At the other end of the spectrum reside developing countries, which standardize remittances as an important source of national revenue. The largest emergent developing countries, China and India, received a total of 106 billion dollars of remittances in 2010. The sources of their remittances were from migrant communities, mainly in the United States and Europe. Mexico, a North American country received 22.6 billion dollars in remittances during the same time .As it stands the share of Africa is marginal, the largest nation of the continent was Nigeria received 10 billion dollar of remittance in 2010. Ethiopia received remittance 387 million dollar in the same year (World Bank Group 2010).Explosion of growth in remittance over the 1990‘s especially in developing countries has inspired a stream of literatures focusing on the impact of remittance on the dynamics of economic growth and poverty alleviation of the recipient country.

On the other hand the policy inference is that remittances should not be regarded as the key instrument on equivalence with traditional growth engines like exports and foreign direct investment (FDI) in promoting long-term economic growth and country’s wealth.

However, while remittances could have significant impact on economic growth and a long run significant impact on poverty reduction as the studies hypothesized, governments in destination and origin countries should aim to sharpen the impacts of such international flows; such as, government needs to have the policy scheme that aims to enhance the amount of remittances, particularly through formal channel. There is evidence that around 50 percent of remittances are under recorded and through informal channel (World Bank, 2006). These informal networks of money dealers commonly offer speedier and cheaper means of transfer than going through the formal channels. However, a number of concerns have been expressed with respect to the operation of the informal fund transfer system, ranging from financial running, money laundering, potential links with terrorist funding, to macroeconomic consequences with respect to inappropriate exchange rate movement tax collection. Transaction costs in sending remittances remain high (IMF, 2005 and World Bank, 2006) so government should lower the costs and any barriers of official remittance channels to enhance the amount of remittances.

Although there are also limited policies such as financial incentives offering premium exchange rates and interest rates to be used for enhancing the amount of remittances. Large amount of, transaction costs, barrier to entry in the remittance market and the government few competition on remittance flow. Formal financial intermediaries networks should be widened by allowing domestic banks to operate overseas, and stimulating the participation of microfinance institutions and credit unions in providing low cost remittances services. Government should also support for the introduction of technology in payment systems. In particular, to increase the official remittances of the poor, partnerships between leading banks and the government post office network and banks without extensive branch networks in rural areas needed to be implemented.

Secondly, these projects also should be emphasized toward how remittances will be used for productive activities in Hadya Zone of selected area. We will investigate by using econometric methods, physical and human capital investments are two key channels through which remittances could generate the positive effects on economic development. Measures that encourage remittances to such investments would enhance its developmental impact. The project team can be undertaken in various forms, could develop appropriate training or education programs to assist returning migrants or remittance receipts in making effective investment decision. In addition, the appropriate infrastructure should be developed to generate favorable investment climate and to complement investments out of remittances. Mexican experience would be a good example where their migrants form hometown associations raise funds for their communities of origin and spend to improve their infrastructure. Their contributions are matched by federal and state government (Temesgen.Y, Wondferhu. M, 2007).

Over and above such two key important policy schemes, the government also needs to have better data collections in terms of both magnitudes and sources of remittances. Data on remittances sometimes are scattered across overlapping categories and institutions. Remittances are often misclassified as export revenue, tourism receipts, non-resident deposits, or even foreign direct investment (FDI). Many types of formal remittances flows go unrecorded, due to weakness in data collection. Without such improvements, it will be difficult for policy makers to precisely examine and evaluate the impact of remittances.

There for the project will try to present the pros and cons of remittances in Hdiya zone at micro level(i.e. recipient household and family) which includes remittances are believed to increase recipients’ incomes, reinforcing their ability to resist externalShocks as well as boosting their investments in health, education and assets and macro level (i.e. national and transnational). On the other hand Even if remittance severity of poverty some shortcomings have been pointed out, such as an increase in pressure on remitters, a growing culture of dependency in developing countries that undermines recipients’ motivation to work, an increase in the consumptive expenses of recipients and a rise in inequalities (between recipients and non-recipients, rural and urban areas).At a macro level, there is a complex welter of promises and pitfalls associated with remittances. While remittances seem to increase the credit-worthiness of Ethiopia and deepen the local financial market, they may also promote the loss of national competitiveness and increase the risk of government corruption by recipients in developing countries. At a transnational level, a review of current literature suggests a similarly complex reality regarding the impacts of remittances. For example, remittances could finance either migrant–diaspora entrepreneurship or criminal Diaspora organizations, which are two opposite potential results. Finally the project will present the existing formal channels in developing countries (e.g. remittances services providers, money-transfer operators, post offices, microfinance institutions and the new transaction technology)