Developing countries and pandemic recovery: report maps over 300 migrants’ finance schemes

On International Family Remittances Day, the European Commission’s Joint Research Centre publishes a new global report mapping, for the first time, over 300 investment schemes used by migrants.

The report opens a new avenue to fully understanding the substantial impact that remittances and diaspora investments are having on international development. In fact, remittance flows to low- and middle-income countries surpass the sum of Foreign Direct Investments and Official Development Assistance, and are expected to further increase in 2022.

The report shows that, beyond simple payments to their families or households in their country of origin, people working abroad invest through a wide range of initiatives, from equities and direct finance to bonds and loans.

The findings come on the back of positive news that remittance flows remained resilient in 2020, registering only a small decline despite the massive disruption caused by the coronavirus pandemic.

Commissioner for International Partnerships Jutta Urpilainen said, “Defying predictions, remittance flows have proved to be resilient during the COVID-19 crisis and have continued to provide a critical lifeline for the poor and vulnerable, notably in developing countries. Last year we were expecting the sharpest decline of remittances flows in history, putting unbearable burden on households facing COVID challenges. International mobilisation by different actors, from individual migrants, private sectors, public regulators and governments, to keep remittances flowing, helped avoid the expected collapse. The European Union remains determined to support remittances as a key tool of solidarity with the families of migrants. The Commission is now working to accelerate the digitalisation of remittances and investment schemes within the formal channels to make remittances a key component of the post COVID-19 economic recovery and build back better in developing countries”.

Commissioner for Innovation, Research, Culture, Education and Youth, responsible for the Joint Research Centre, Mariya Gabriel said: “This report gives insights on remittances and international development that show us again how vital science is to help understand and address big challenges and grasp opportunities. By bringing a broader perspective and showing where data is missing, the report can inform future action to evaluate and unlock the potential for remittances and investments to contribute to the post-pandemic recovery in developing countries”.

Mapping investments and identifying data gaps

By identifying investment schemes and providing recommendations to improve data collection and sharing, the study and its dataset are a starting point to support the collection and scaling up of promising initiatives that can unlock the potential of these investments to contribute to the economic and social recovery from the coronavirus pandemic.

The report analysed an extensive range of literature, from research articles and reports to websites and promotional materials in several languages, and found evidence of 329 distinct investment schemes. The most common financial mechanisms identified were remittances and equities (46 and 44 distinct mechanisms identified respectively), followed by loans (29) and bonds (27).

99 initiatives were also identified which focused on knowledge exchange, such as mentoring, developing financial literacy, building and sharing skills and increasing information about investment opportunities. Although not themselves involving financial transfers, these initiatives are often connected with, and vital for, successful investments.

The report also finds there is a lack of detailed information on how many of the investment programmes work, the return they yield to investors or their impact on beneficiaries. This is despite diaspora investment mechanisms being widespread around the world and potentially of significant value.

Whereas international data on remittances is collated and published by international organisations, this is not the case for diaspora investments. The authors call for more systematic gathering of data and information on outcomes to better understand how they work and what their impact is.

Supporting migrants’ contribution to economic recovery

Remittances sent to developing countries by migrants working in the EU are of a very large scale. According to the most recent available World Bank data, in pre-COVID context, they amounted to 50 billion euros or 11% of the total flows developing countries receive. The EU is the second largest source of remittances, with an estimated 105 million people in developing countries benefitting from remittances sent from the EU.

The programme ‘Platform for Remittances, Investments and Migrants’ Entrepreneurship in Africa’ (PRIME Africa) aims to improve the management of remittances and their use for development outcomes. The platform supports seven African countries (Senegal, The Gambia, Ghana, Kenya, Uganda, South Africa and Morocco) in setting up innovative businesses that make transferring remittances cheaper and faster.

In order to promote migrants’ contribution to the economic recovery of developing countries, the Commission will support, under PRIME Africa, nine digitalisation and financial inclusion business initiatives in West Africa that will benefit over one million people receiving remittances in rural areas. Parallel activities are ongoing in East Africa, with open calls for proposals in Kenya and Uganda, and future calls in Southern Africa and North Africa.

During lockdown, several EU countries declared money transfers operators as ‘essential services’, allowing them to continue operating. In June 2020, the EU approved the Revised Cross-Border Payment Regulation, which increases transparency by obligating operators to show the total cost of sending remittances.

In order to counter COVID-19 effects in receiving countries, the Commission also funded a United Nations Capital Development Fund project to support adoption of digital remittances in Africa (Gabon, Niger, Malawi and Ethiopia) as well as in the Caribbean (Trinidad and Tobago and Eastern Caribbean States) and in the Pacific region (Vanuatu, Samoa, Timor Leste, Tonga and Fiji).

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