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Beyond Remittances: The Role of Diaspora in Poverty Reduction in their Countries of Origin A Scoping Study by the Migration Policy Institute for the Department of International Development July 2004 By Kathleen Newland, Director with Erin Patrick, Associate Policy Analyst Migration Policy Institute 1400 16th Street, NW, Suite 300 Washington, DC 20036 202-266-1940 www.migrationpolicy.org The Migration Policy Institute is an independent, nonpartisan, nonprofit think tank dedicated to the study of the movement of people worldwide. The Institute provides knowledge-based analysis, development, and evaluation of migration and refugee policies at the local, national, and international levels. Additional information on migration and development can be found on the Migration Information Source, MPI’s web-based resource for current and accurate migration and refugee data and analysis at www.migrationinformation.org. i Table of Contents Executive Summary iv Introduction Table 1: Resource flows to developing countries (in billions of US$) 1 Part I: Overview of Country of Origin Policies and Practice towards Diaspora 3 China Table 2: Foreign Direct Investment Inflows in China, (1990-2001) India Table 3: Percentage Distribution of NRIs and PIOs by Region Text Box: “Investment or remittances? Chinese and Indian Patterns” Eritrea Table 4: Total Number of Eritrean Refugees, 1992-2003 The Philippines Mexico Table 5: Stock of Foreign Born from Mexico in the United States, 1995-2003 Taiwan Reflections Part II: Diaspora Engagement in Countries of Origin 14 Home Town Associations Business Networks Building Social Capital Perpetuating Conflict Moderating Conflict Philanthropy Reflections Part III: Donors’ Engagement with Diaspora 23 Human Capital Programs Community Development Research Building Capacity in Diaspora Communities Reflections ii Part IV: Recommendations 28 1. Research 2. Remittances 3. Ownership 4. Building on Success 5. Public-Private Partnerships 6. Networking 7. Philanthropy 8. Diaspora Support for Conflict 9. Post-Conflict Settings 10. Development-friendly Migration Policies 11. Recognition of the Limits of Diaspora Policies Reflections ANNEX I: Top fifteen countries with the highest total remittances received 2001 ANNEX II: Top fifteen countries with the highest total remittances received as a percentage of GDP, 2001 ANNEX III: Top ten sending countries to select destinations, by country of birth or nationality 35 Contributors 39 Endnotes 41 iii 36 37 Executive Summary This paper analyzes the impact of established Diaspora on the reduction of poverty, and identifies ways in which policy interventions, especially from donors of official development assistance, might strengthen that impact. The new policy interest in Diasporas reflects a broader concern with globalization, and specifically the very recent appreciation of the volume of remittances to developing countries by emigrant workers and their descendents. Remittances, however, are far from being the only vehicle for Diaspora influence on the incidence of poverty in their home countries. For many countries, the Diaspora are a major source of foreign direct investment (FDI), market development (including outsourcing of production), technology transfer, philanthropy, tourism, political contributions, and more intangible flows of knowledge, new attitudes, and cultural influence. The quality of information, much less hard data, about Diaspora influences in these dimensions is in general very poor, posing a serious challenge to policy development. This paper examines the role of Diaspora in poverty reduction through four main areas of focus, as requested by DFID: • Policy and practice towards Diaspora on the part of countries of origin • Diaspora engagement in countries of origin (in the economic, social and political spheres), including the networks and infrastructure in which it is manifested • Donor engagement with Diaspora • Recommendations for future activity by DFID to maximize the contribution of Diaspora to development and poverty reduction Countries of origin that actively court their Diasporas do so in a variety of different ways and with different priorities. Case studies of China, India, the Philippines, Mexico, Eritrea and Taiwan are used to illustrate six contrasting patterns. Some of these patterns are more conducive to direct poverty reduction than others. The most immediate effects are likely to come from strategies, like that of the Philippines, which seek to maximize the income stream from remittances directly to households. The income stream lasts only as long as migration lasts, and is thus vulnerable to changes in receivingcountry immigration policies as well as the continued attachment of long-term immigrants to the home country. Attempts to pre-empt individual remittances into government channels, as in the case of Eritrea, may erode some of the poverty-reducing potential of Diaspora transfers; whether they bear fruit in the longer-run depends very much on the success of national development policies. Mexico’s attempts to use federal programs to promote collective remittances and to make the sum of individual household remittances greater than the sum of their parts are now being widely imitated in Central American and Caribbean countries with large overseas populations. The local focus of many of these programs gives them a direct connection to the poor, but the outcome is also dependent on improvement in macroeconomic conditions. Poor infrastructure (physical and financial), underdeveloped markets, corruption, and a poor investment climate confine the potential of remittance-focused strategies to the immediate receivers. Remittances do, however, shelter recipients from the effects of these development inhibitors nonetheless—at least in the short term. China, India and Taiwan focus less on remittances in favor of pursuing three very different businessoriented models in seeking Diaspora contributions to development. Taiwan has pursued a “brain trust” model, focused on attracting human capital from the Diaspora. China has long worked to attract direct iv investment and open trade opportunities through overseas Chinese communities. India’s recently launched Diaspora policy is multi-pronged, pursuing direct investment, portfolio investment, technology transfer, market opening and out-sourcing opportunities. The dense web of ties between Diaspora and country of origin is, in the overwhelming majority of cases, the creation of individuals and groups acting on their own initiative, rather than a product of government intervention. Beyond the individual and family level, Diaspora organizations include associations of migrants originating from the same locality, ethnic affinity groups, alumni associations, religious organizations, professional associations, charitable organizations, development NGOs, investment groups, affiliates of political parties, humanitarian relief organizations, schools and clubs for the preservation of culture, virtual networks, and federations of associations. The poorest countries are not positioned to take advantage of many kinds of business investment, but millions of poor people in countries that are more technologically sophisticated might benefit from the multiplier effects of Diaspora investment. However, the most wretched countries are those that have been suffering the effects of protracted armed conflict and bad or non-existent governance. What the poverty-stricken in Sierra Leone, Somalia, Liberia, Haiti, and Sudan (to name just a few) need, above all, is peace, and then progress toward the construction of an economic climate that will encourage emigrants to make social and economic investments in their countries of origin. Diaspora groups may have a role to play in peace and reconstruction processes, and governments that host them should carefully consider encouraging the involvement of those who can be seen as honest brokers. Donor governments and multilateral agencies have only recently begun to think systematically about the actual and potential contributions of Diasporas to development and/or the reduction of poverty in their countries of origin. The dominant focus of donors has been on remittance flows: how to increase them and direct them toward more “developmental” uses. Their interest has coalesced around lowering transaction costs, improving data collection, extending the availability of financial services to poor people and rural areas, encouraging collective remittances to support community development and employment generation, and sponsoring research on the patterns and uses of remittances. Donors have not been as heavily involved in other forms of interaction between Diasporas and their countries of origin. They have tended to leave business investment (FDI and portfolio investment) to the marketplace; national programs providing investment guarantees are not particularly targeted at Diaspora groups. But donors are active, if still on a small scale, in human capital programs, community development, activities to expand the knowledge base and understanding of the role of diasporas, and a diffuse array of actions that may preserve or transfer social and political capital. DFID and a number of other major donors have awakened to the development potential of Diasporas. Helping to realize and magnify that potential in a way that reduces poverty calls for smart and careful programming, backed by a thorough, country-specific understanding of Diasporas and the dynamics of their interaction with their countries of origin. Diaspora communities often reproduce the divisions of class, ethnicity, religion, political affiliation, language and region that are found in their countries of origin. Such differences within and among Diaspora groups will influence the nature and scale of their capacity (and willingness) to act as agents of poverty reduction. The paper concludes with a number of recommendations. The first is that DFID and other donors invest heavily in a stronger knowledge base for policy making through research, analysis and rigorous evaluation of Diaspora involvement in development and its impact on poverty. Even at this early stage v of donor engagement, policy-making is running ahead of knowledge of the magnitude, direction and uses of remittances. Recognizing that successful Diaspora projects for home-country development must be led, or “owned” by the Diaspora groups themselves is an important starting point for donors, who are advised to build upon successful endeavors rather than create them from above. Public-private partnerships may leverage donor contributions into a much more effective resource. Donors should consider providing seed money, technological assistance and logistical support to build and strengthen Diaspora networks that have a strong developmental potential, such as those devoted to cooperation in business or information technology. Support for networking should not be confined to the economic sphere, but should also extend to peace-building and reconciliation networks in the Diaspora. Donors should also encourage and assist Diaspora philanthropy that has a direct impact on poverty or its effects. Support could take the form of technical and legal assistance to nascent charities, or in some cases where a solid track record has been established, co-funding of activities may be appropriate. More generally, tax credits or offsets against country of settlement taxes can be a powerful incentive for charitable contributions. Donor governments should, however, intervene to stop fundraising in the Diaspora for support of destructive communal conflicts, possibly using the mechanisms of the G7 Action Plan within the Financial Action Task Force on Money Laundering. In post-conflict settings, donors must be clearly seen by all sides as neutral in order to avoid reinforcing inter-communal tensions, which means that the choice of partners from among Diaspora groups must be made very carefully. Donor governments that are serious about transnationalism as an engine of development will strive for policy coherence across departments of government. This means an immigration policy that creates opportunities for legal residence and fosters integration, and visa policies that make it easier for members of Diasporas to come and go between home and host countries. Diaspora-based development efforts are a powerful development resource, but they are not a substitute for donor resources, or for economic policies conducive to pro-poor development. Many national and international donors and NGOs are structured in a formal manner, and may overlook, be reluctant, or find it very difficult to work with the often less formal, traditional self-help organizations that make up a significant percentage of Diaspora groups. The benefits and unique strengths of both Diaspora groups (keen cultural awareness of communities of origin, ease of working in both cultures, trust of communities of origin, better awareness of specific needs and/or potential pitfalls, long term personal commitment to projects and communities) and international development agencies (larger funding capacity, professional/technical expertise and experience, efficiency through economies of scale, credibility) can all be magnified through effective collaboration. vi 1. Introduction The vast literature on Diaspora in the humanities and the social sciences stands in stark contrast to the paucity of policy analysis. 1 The policy literature differs substantially in tone from the humanities literature, in which Diaspora has a tragic connotation associated with the persecution of the Jews and the African slave trade. The recent policy literature, however, is predominantly upbeat. It emphasizes the opportunity that comes with emigration and the positive contributions that dispersed migrants and their descendents can make and have made to their countries of origin and of settlement. The focus of this paper is on the role of Diaspora communities in reducing poverty in their home countries. This is a narrower focus than the more common question of the links between migration and development, or indeed the role of Diaspora in development. Migration does not always result in the long-term dispersal of a people; some migrants leave their home countries only temporarily, or assimilate into countries of settlement so completely that they lose their distinctive identity and ties to their homelands. And while poverty reduction is assumed to be one of the benefits of development, the relationship is far from linear. In other words, migration does not always result in the formation of a Diaspora community; and development does not always lead to poverty reduction, at least in the short-to-medium term. This paper analyzes the impact of established Diaspora on lifting people in their traditional homelands out of poverty, and identifies ways in which policy interventions, especially from donors of official development assistance, might strengthen that impact. In a few cases, the actions of Diaspora are perverse, and contribute to perpetuating poverty. In such cases, the aim of donor governments is to prevent or at least mitigate such actions. For the purposes of this paper, the understanding of Diaspora is very similar to the definition offered by G. Scheffer: “Modern Diasporas are ethnic minority groups of migrant origins residing and acting in host countries but maintaining strong sentimental and material links with their countries of origin—their homelands.” 2 The term Diaspora comes from the Greek words “to sow” and “over”, as in the scattering of seed, and for them it meant the “seeding” of Greek colonies in distant lands. It was later associated with forced expulsion and dispersal and acquired the sense of loss and the implication of a strong desire to return. Ronald Skeldon elaborates on this theme: “Implicit in the concept of communities-in-exile is the assumption that peoples are not assimilated into the societies of destination: they retain their distinct identities ready for the day when they can return home.” 3 “Diaspora” is often used as a collective noun (“the scattered”), referring to a dispersed people, but it is also used in the plural, as there are many different peoples who are dispersed among different countries, and as an adjective. It is now, often, also used to refer to migrant communities even if they do not share the attributes of forced dispersal, residence in many countries over several generations, and a longing to return. It does, however, imply a settled community, rather than a group of temporary migrants with the intention and ability to return to their country of origin. The new policy interest in Diasporas may be seen as a facet of a broader concern with globalization, and specifically with the very recent appreciation of the sheer volume (and the even greater potential volume) of financial flows directed toward developing countries in the form of remittances by emigrant workers and their descendents. 4 The UK Department for International Development (DFID) commissioned a separate scoping study on international remittances 5 . This paper will not cover the same ground, but does draw on the observations of that work. 1 Remittances have a direct impact on poverty reduction, since they tend to flow directly to poor (although not necessarily the poorest) households and are used primarily for basic needs such as food, shelter, education and health care. The common observation that remittances are not used for “productive” investment misses the point that poor households rationally give priority to these basic needs, which represent an investment in human capital as well as needed consumption. Spending on basic needs also has a multiplier effect in the community. Remittances, however, are far from being the only vehicle for Diaspora influence on the incidence of poverty in their home countries. For many countries, the Diaspora are a major source of foreign direct investment (FDI), market development (including outsourcing of production), technology transfer, philanthropy, tourism, political contributions, and more intangible flows of knowledge, new attitudes, and cultural influence. The quality of information, much less hard data, about Diaspora influences in these dimensions is in general very poor, posing a serious challenge to policy development. Table 1: Resource flows to developing countries (in billions of US$) 6 200 FDI 180 160 140 Capital market flows 120 100 Remittances 80 60 40 20 Official flows 0 -20 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 This paper will examine the role of Diaspora in poverty reduction through four main areas of focus, as requested by DFID: • • • • Policy and practice towards Diaspora on the part of countries of origin Diaspora engagement in countries of origin (in the economic, social and political spheres), including the networks and infrastructure in which it is manifested Donor engagement with Diaspora Recommendations for future activity by DFID to maximize the contribution of Diaspora to development and poverty reduction Generalizations about Diaspora are perilous, given the tremendous variation in historical experience, relations with authorities in the home country, levels of prosperity and education, religious background and ethnicity both within and among Diaspora communities. The experience of living outside the homeland may exacerbate the differences within a group, or forge new common identities among disparate members. No matter how heterogeneous or homogeneous, Diaspora communities do form a living link between their countries of origin and their countries of 2 settlement. This paper will explore the impact of that link on poverty in countries of origin, and suggest ways in which policy interventions might strengthen the positive outcomes. I. Overview of Country of Origin Policies and Practice toward Diaspora Countries that have experienced large out-migrations run the gamut of attitudes toward their Diaspora, from warmly embracing to coolly instrumental, from active engagement to indifference, from mobilization to hostility. Their policies and practices reflect these diverse views, but the clear trend is for homeland states to court their nationals and the descendants of nationals who are living abroad. The Diaspora are variously seen as sources of financial flows, economic opportunities, technology transfer, political support, progressive attitudes, and a good image of the home country. Countries of origin that actively court their Diasporas do so in a variety of different ways and with different priorities. China, India, the Philippines, Mexico, Eritrea and Taiwan illustrate six contrasting patterns. China The Chinese Diaspora originated in the sea-faring communities of the southern coastal provinces and the trading outposts they established in the littoral cities of Southeast Asia. Massive labor migrations followed in the 19th century as Chinese workers populated agricultural and extractive industries as well as infrastructure projects in the European colonial sphere. Political and economic tensions in the 20th century drove a dispersion of part of the Chinese Diaspora (a scattering of the scattered) from Malaysia, Indonesia, Vietnam and Honk Kong, even as the traditional countries of immigration in the Western rescinded racist immigration legislation that had previously excluded Chinese. Today, overseas Chinese communities exist in virtually every country in the world, at an estimated strength of some 35 million people. They are still augmented by new arrivals from the southern coast, but new migrants are just as likely to come from major cities such as Beijing and Shanghai. The pace of immigration to the traditional countries of immigration (the United States, Canada, Australia, New Zealand) from China has escalated markedly in recent decades; in the United States, for example, the Chinese-born population increased from 286,000 in 1980 to 1,519,000 in 2000. 7 The 2001 census in the United Kingdom, the population enumerated as Chinese was 247,000. 8 The government of the Peoples Republic of China has actively (with the Cultural Revolution being the one significant hiatus) sought to maintain a sense of Chinese identity among overseas communities of emigrants and their descendents. This has important symbolic components, like the creation of an overseas Chinese museum and a World Overseas Chinese Cemetery in China. 9 Since the implementation of China’s economic opening began in 1979, however, the economic dimension has been dominant and dynamic. In the late 1980s, China ratcheted up the effort to combine sentiment and incentives to attract investment from the Diaspora, emphasizing patriotic feelings while offering generous investment packages to overseas Chinese. According to You-tien Hsing, ‘the campaign of attracting overseas Chinese capital escalated after the Tiananmen massacre in 1989, when many nonChinese foreign firms fled China.” 10 The central government was not the only, or even the major player, in attracting Diaspora investors. Writing of investment from Taiwan into mainland China, Hsing makes the point that the partners to the overseas Chinese investors in many cases were entrepreneurial local officials, making the most of 3 their autonomy in the post-Mao era of economic and fiscal reform. “They have simplified the process and regulation of investment and made concessions in taxes and fees for Taiwanese investors. Such flexibility…was crucial to the success of Taiwanese investment.” 11 Local officials emphasize the ties of emigrant families to their ancestral villages, and receive investors who come back with a hero’s welcome. 12 The fact that much of the Chinese Diaspora originated in coastal southern China is certainly part of the explanation for that region’s emergence as China’s fastest growing area. Foreign direct investment (FDI) has been a major factor in the emergence of China as a manufacturing and trading powerhouse in the 1990s. It is estimated that about half of the £26 billion ($48 billion) in FDI that flowed into China in 2002 originated with the Chinese Diaspora. 13 Ethnic Chinese also have an important impact on the volume of bilateral trade between the PRC and their countries of settlement. Table 2: Total Foreign Direct Investment Inflows in China (1990-2001) 14 1990-94 (average) 1995 1996 16.1 35.8 40.2 1997 1998 1999 2000 2001 44.2 43.8 38.8 (in billions of US dollars) 38.4 44.2 The PRC government has encouraged Diaspora engagement in both FDI and trade, as well as philanthropic contributions and other activities, through preferential policies and the encouragement of a sense of belonging to the Chinese homeland. Many analysts emphasize, however, that the chief motive for business ties is profit, and that ‘Chineseness’ is too often seen uncritically as an undifferentiated attribute of what is in fact a large and highly diverse Diaspora. 15 Exogenous factors such as the extremely rapid growth of Hong Kong, Taiwan and Singapore in the 1970s and 1980s, increased protectionism in the West, economic reform in China, and personal or local networks are more important than sentiment—or any effort by the Chinese government to court its Diaspora. The post-1978 economic reforms, including flexible labor laws, efficient administrative procedures, tax incentives for investment, and massive investment in physical and social infrastructure were attractive to non-Chinese as well as Chinese investors. In this enabling environment, the overseas Chinese were able to turn their linguistic, cultural and other capabilities into a comparative advantage. Curiously, the volume of remittances into China is small in relation to the size of the Diaspora and the volume of other financial flows—some £4 billion between 1991-98, which is only one-seventh the volume of remittances from India’s 20-million strong Diaspora in the same period—suggesting that person-to-person ties from Diaspora to mainland Chinese are not the leading factor in development or poverty reduction. Rather, Diaspora relations with the mainland follow a business model with investment as the main vehicle, often but by no means always into communities of origin. The direct and short-run impact on poverty reduction from the business–oriented model may be less than from a remittance-led pattern that puts income directly into the hands of the poor, but the prospects of continued job creation are likely to benefit the poor in the long run even though that may not be the primary purpose of the business investment. To some degree, the long-term 4