OFFICE OF THE CHIEF ECONOMIST & VICE PRESIDENT, ECON Development Research Department African Development Bank Group Leveraging Migration for Africa: Remittances, Skills, and Investments Launch of the Report at the African Development Bank April 11, 2011

Africa Migration Project: An Overview Joint African Development Bank and World Bank Multi-donor trust fund  Donors: CIDA, DFID, France Ministry of Immigration and Integration, AFD, IFAD, SIDA, Danish MFA Emphasis on collaboration with local researchers in Africa

Africa migration report 1 Migration patterns and policies in Africa 2 Migrant Remittances in Africa 3 Migration of the highly skilled in Africa 4 Harnessing Diaspora resources Chapters

Publication: March –April Flagship Report on Migration, Remittances and Development in Africa 2.Edited volume: Remittances Markets in Africa 3.Edited volume: Diaspora and Development 4.Household survey data from 6 countries, catalogue and guidance notes 5.Report of Global Survey of Central Banks on Remittances (already published)

Key messages Migration comes in all its complexity in Africa, but it is predominantly intra-regional Migration reduces poverty Remittances are large – much larger than currently measured – in Africa. They proved to be resilient during the recent crisis. Migration of skilled people can generate complex effects, but in the end, labor market solutions have to be found – supply of skill has to be augmented to meet global and local demand

Key messages (contd …) Diaspora can be a significant source of wealth and ideas for development. Capacity for managing migration is weak in Africa and needs to be strengthened. However, in general, migration should not be viewed as a substitute for development at home. Rather it is an integral – and beneficial - aspect of globalization.

Mapping Migration in Africa

South-South migration is larger than migration from developing countries to high-income OECD countries Source: Leveraging migration for Africa: remittances, skills and investments 2011 Destination of migrants from the South

In Sub-Saharan Africa migration is predominantly intra- regional Source: Leveraging migration for Africa: remittances, skills and investments 2011 Destination of migrants from SSA

Key results: patterns (contd..) South-South migration is a feature of migration pattern in Africa

Emigration from North Africa is mostly to the OECD countries Destination of migrants from North Africa Source: Leveraging migration for Africa: remittances, skills and investments 2011

Africa’s migration rate appears to be lower than the world average; but Africa has data gaps

High Skilled Migration from and within Africa

Skilled migration rates are highest among smaller countries

Migration: policy challenges & options What should we do? Treat the symptom or cure the disease? Take away Passports? Punish the recruiters? Pay higher salaries back at home? Make migrants pay for their education? Make migrants feel guilty?

Migration: policy challenges & options …or is high level of skilled migration a result of wrong education, healthcare, labor market policies?

Migration: policy challenges & options Cost of education of professionals is easily outweighed by remittances Supply of skill has to be matched to global and local demand – Through labor markets, not quotas Promising policy interventions: foreign hospitals open training centers in Africa; improve working conditions; increase R&D spending

Mobilizing Diaspora Resources

African Diaspora For the Report African Diaspora is classified into:  skilled and unskilled  Located inside and outside Africa  Data for population born in country i and living in country j (from census data)

Diaspora contributions Provide information about international trade opportunities; match making; referral services Diaspora can be an important source of:  Research and innovation  Technology transfer  Skills development  Capital  Philanthropy  Collective remittances

Diaspora Investment Diaspora resources are determined by the net wealth of members. Types  Diaspora bonds (India, Israel, Ethiopia, Zimbabwe)  Diaspora funds (Liberia is considering it) Several countries show that diasporas do invest (e.g., China, Ethiopia, India, Israel, Ireland)

Policies to maximize the benefits of the Diaspora Dual/Multiple citizenship/Voting rights Conducive business environment/trade/technology/invest Measures to quantify their Diaspora Develop financial instruments to tap to the Diaspora Portability of pension funds Embassies abroad should be encouraged & equipped (staff and resources) to provide services to their Diaspora

Remittances in Africa

Remittances are a large and stable source of finance for Africa ($ billion, 2008) Recorded remittances41.1 ODA39.4 FDI55.7 Private debt & portfolio equity-10.9

Remittances proved to be resilient during recent crisis Remittance flows to North Africa approx. $18 billion and Sub-Saharan Africa $21 billion in 2009 Flows to Africa fell by 12% in North Africa and only 3.6% in Sub-Saharan Africa Risks to the outlook include delayed economic recovery, currency movements, and rising protectionism

OFFICE OF THE CHIEF ECONOMIST & VICE PRESIDENT, ECON Development Research Department African Development Bank Group Improving the developmental impacts of Remittances: the issues

High transfer costs in Africa create incentives to use informal channels Source: Leveraging migration for Africa: remittances, skills and investments 2011

High cost and limited access to banks are top factors inhibiting use of formal channels Source: Leveraging migration for Africa: remittances, skills and investments 2011

Facilitating remittances Cost of remittances should be reduced especially in South-South corridors Exclusive partnerships are being eliminated in some African countries, but de facto arrangements continue in practice Post offices and mobile phone companies can play a significant role Mobile phone remittances show promise; but regulations continue to pose obstacle to using these technologies in cross-border remittances

Remittances are now being factored into debt sustainability analysis of low-income countries External Debt as a percent of exports, 2008

Potential for securitization of remittances and other future-receivables in Africa Potential: $17 billion in Sub-Saharan Africa alone from future flows of mineral exports, tourism receipts and remittances Constraints to remittance securitization in Africa  Lack of sovereign ratings in many African countries  Paucity of highly rated banks and firms  High fixed costs (legal, investment banking fees)

Diaspora Bonds: promising innovative source of development finance Migrants more loyal than average investors in times of distress might be interested in financing infrastructure, housing, health and education projects. Diaspora bonds would offer higher interest rate than the rate Diaspora savers earn from bank deposits where they reside. Preliminary estimates suggest Sub-Saharan African countries can potentially raise $5-10 billion per year by issuing Diaspora bonds.

Potential for Diaspora bonds Sub-Saharan Africa Country Diaspora size (thousands) Potential savings ($ billions, 2007) South Africa Nigeria Ghana Kenya Ethiopia Somalia Senegal Zimbabwe Sudan Angola5231.0

Summary Migration comes in all its complexity in Africa, but it is predominantly intra-regional. Remittances provide a lifeline to the poor in Africa; these flows can be leveraged for financial access of both households and countries. Supply of skill has to be matched to global and local demand through labor markets, not quotas.

Summary Diaspora can be a significant source of wealth and ideas. Financing for development can be raised via Diaspora bonds. Embassies need to be strengthened and encouraged to mobilize Diaspora resources. Capacity for managing migration needs to be strengthened. Migration should not be viewed as a substitute for development at home. But migration is an integral – and beneficial - aspect of globalization.

OFFICE OF THE CHIEF ECONOMIST & VICE PRESIDENT, ECON Development Research Department African Development Bank Group Report available online at events/article/african-migration-generates-win-win- benefits-says-new-report-7878/. events/article/african-migration-generates-win-win- benefits-says-new-report-7878/