At D8.6 Billion in 2016 (22% Of GDP), Gambians In The Diaspora Are Contributing Significantly To The Country’s Development. Isn’t It Time To Start Reporting Remittances In The National Budget
The money send back home by Gambians in the diaspora have helped to remove a dictator from power, change the lives of migrant’s Families and accelerate economic growth. The impact that remittances is having in the country’s economy can no longer be ignored.
At a time when the Gambia’s economy continued to face many challenges including unprecedented debt level, gaping deficit and rising youth unemployment; there have been a sharp increase in migration and remittance payments. Yet remittance flows into the economy are heavily underreported and still remain in the backwaters of academic study.
The flows through informal channels are not captured and if the substantial unrecorded flows were estimated and included in the country’s budget, the documented benefits would be even greater. It would have positively impacted the huge domestic debt and significantly reduced the chronic deficit reported every year since 2008, thus fostering a more economic stability for the country
One fundamental reality is often overlooked, the important role that Gambians abroad played in dethroning one of Africa’s most brutal dictator. Through their contributions, they helped to bring about change of government in the country which would not have been possible without the massive funds that was successfully mobilized when the coalition parties desperately needed money to fund their campaigning during the 2016 Presidential election. Although many were denied to vote, they responded massively and literally voted with their wallets. That is why it is safe to say that the fate of this country’s economy is largely depend on migrant’s remittances.
According to IFAD and World Bank reports, the total for remittances in 2016 reached a record of almost $ 180 million (D8.640 billion) contributing almost 22% of GDP. Remittances are important at both the macro- and micro- economic level. At the national level, it have a substantial effect on the balance of payments and on foreign exchange revenues. It accelerate economic growth and plays a vital role in providing potential source of investment capital for both physical and human capital development thus becoming more important sources of finance and investment, it had arguably outpaced receipts from tourism and agriculture, the mainstay of the economy.
For many households and relatives, the money that Gambians working abroad earned and sent home have helped to transform the lives of the families that the migrant left behind. Where some migrant families used to live in dilapidated houses, now they live in newly built cement houses with satellite TV antennas glittering on rooftops, where candles used to light up the nights in the towns and villages that migrants came from, now there are generators and solar panels. Where many smallholder businesses were closing down due to limited access to capital and goods, now many individuals have open up shops selling containerized second-hand goods, used cars, sofa furniture and other classic household goods shipped by migrants residing in Europe, Asia or America.
There is a strong nexus between remittances and international migration. While the dispiriting effect of youth unemployment in the country is a ‘powerful driver’ for international migration, the improvements in the lives of those who make it to Europe or America also provide powerful incentive for young people to risk their lives for the chance of a better lives for themselves and their families back home. Since talk of curbing illegal migration, whether across the dangerous seas or not, have grown louder in Western government circles, the increase in the number of youths who are ready to put their lives on the line to make it to Europe have turned the volume up still more.
State-owned enterprises are also benefiting from remittances
Apart from the money they remit to purchase durable goods and pay for school fees, remittances also hugely benefit some of the State-Owned Enterprises (SOEs). Whether it is the money they send directly to family members or the endless phone calls they are making back home passing through the international gateway (incidentally one of the highest in the region) translating into massive revenues for GAMTEL or the unprecedented increase of containerized durable goods and used cars shipped through our ports or the excise duties these goods attract translated into huge revenues for GRA; Gambians in the diaspora continue to contribute effectively to development.
Changing the calculations
Measurement of the effects of remittances on the economy is notoriously difficult as it requires estimation of economic activity that is deliberately hidden from official transactions. If remittances can go up to 22% of GDP how come they are not included in the calculation of GDP? If you use incomes to calculate GDP as in the Gambia, you only add those incomes that are made from the production of goods and services. Since remittances are basically treated as transfers they are not included. But, as some economists argue, if the remittances are deposited in banks as fixed deposit earning income or invested in properties for rent, then they do enter the GDP as part of ‘investment’.
Depending on what approach this government is using to measure GDP which is the estimated value of the total worth of a country’s production and services, within its boundary, by its nationals and foreigners, calculated over the course on one year; many governments continue using this formula:
GDP= C + I + G + (X-M), where
G: Government spending
X: Exports going out of the country
M: Imports into the country
This measure is needed to see the strength of a country’s local economy. The critical word here is local. While remittances can be a source of GDP growth by increasing household consumption, it does not directly add to GDP. However, it does affect GNP.
Gross National Product (GNP) which is an estimated value of the total worth of production and services, by citizens of a country, on its land or foreign land, calculated over the course of one year. Therefore, the formula for GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) – (Net Payment outflow of foreign assets).
There are various ways of calculating GNP numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents, interest, profits, non-income charges, and net foreign factor income earned. The three methods yield the same result because total expenditures on goods and services (GNE) is equal to the value of goods and services produced (GNP) which is equal to the total income paid to the factors that produced the goods and services (GNI).
Joseph Eugene Stiglitz, an American economist and a professor at Columbia University, says that If economic activity occurs in the country but the income from this activity accrues to foreigners, it will still be counted in GDP but not in GNP as He says that GNP measures the income of the people within the country whereas GDP measures economic activity in the country. Therefore, he argued for GDP as the primary measure of economic progress supplanting GNP. He cites the example of privatized mining. Often the state gets a royalty of 1-2% but the income from privatized, foreign-owned mines accrues largely to shareholders.
It’s time to bring remittances into the light
After so many years of government ineptitude and economic mismanagement resulting in a wasteful expenditure, severely depleted domestic foreign reserves, mountain of domestic debt and a persistent deficit; acute austerity measures and proper accounting for migrant’s remittances could improve the economic wellbeing of the people of this country. The main challenges remain how best to assess the impacts of remittances and how to design policies that facilitate the transmission and productive use of remittance flows while taking into account the idiosyncrasies of the country. Possible policies range from easing capital controls to reforming immigration policy.
The purpose of this write up is to stimulate and inform discussions on the role remittances play in the economy. By exploring the link between remittances and development, government could design appropriate policy interventions to boost remittance flows and raise their impact on development. It is time to take remittances seriously and bring it into the light, not least for its impact on the national economy.
Dr. Alieu Faal