Remittances are a vital source of income and foreign currency for many countries but are no substitute for home-grown development.
Between January and November of 2021 Mexico received $46.83 billion in remittances — transfers of money by workers of Mexican descent largely in the US but also other countries to individuals in Mexico. It is a 27% increase on the same period of 2020, which itself was a record year for remittances. According to El Financiero, it’s the highest rate of increase in 18 years.
The Bank of Mexico still hasn’t published the data for December 2021 but barring a sudden, sharp reversal, Mexico’s remittance haul for 2021 will surpass $50 billion for the first time ever. That’s after increasing by 11.4% to $40.6 billion in 2020, a year when the U.S. economy, where 98% of the remittances to Mexico originate, suffered its worst annual contraction since 1946.
Mexico has registered 19 straight months of rising remittance inflows. Between January and November 2021, almost 124 million remittance payments were registered, 14.2% more than in the same period of 2020. Mexican migrant workers are not just sending money back home more often; they are sending larger amounts each time. The average remittance in the period was $378, 11% higher than in 2020.
“A Blessing” for Mexico
On Friday, Mexico’s President Andres Manuel Lopez Obrador (AMLO) described the trend as a “blessing” for the country he leads:
“It is the main source of income for Mexico. The data for December is an estimate, but I can tell you we have figures before the Bank of Mexico [releases its data] and we make a projection and it generally matches up, and we are calculating that by December… we will be at $51.63 billion… the equivalent of eight thousand pesos a month for 10 million families.”
Mexico is not the only Latin American country to have seen a sharp rise in remittance flows in 2021. According to the World Bank’s latest projections, published in November, Latin America and the Caribbean would receive a record remittance haul of $126 billion dollars in 2021, which would represent an increase of 21.6% on 2020. Mexico would account for just over 40% of the total.
In most parts of the world, remittances increased in 2021. Though the full data for the year is not yet available, the World Bank estimates that remittances to low- and middle-income countries grew by 7.3% in 2021, to reach a record $589 billion:
For a second consecutive year, remittance flows to low- and middle-income countries (excluding China) are expected to surpass the sum of foreign direct investment (FDI) and overseas development assistance (ODA). This underscores the importance of remittances in providing a critical lifeline by supporting household spending on essential items such as food, health, and education during periods of economic hardship in migrants’ countries of origin.
The bank expected remittances to grow by 9.7% in the Middle East and North Africa, 8% in South Asia, 6.2% in Sub-Saharan Africa and 5.3% in Europe and Central Asia. The only region where remittances were forecast to fall in 2021 was the Asia Pacific.
The rapid recovery and dramatic resurgence of remittances is one of the big — and largely pleasant — economic surprises of the pandemic era. In April 2020, at the onset of the pandemic, the World Bank painted the bleakest of pictures for global remittances. As the global economy seized up, financial markets plunged and many migrant workers lost their jobs or hurried home, the multilateral lending institution warned that remittances would drop precipitously, just as had happened in the wake of the Global Financial Crisis:
Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5 percent), followed by Sub-Saharan Africa (23.1 percent), South Asia (22.1 percent), the Middle East and North Africa (19.6 percent), Latin America and the Caribbean (19.3 percent), and East Asia and the Pacific (13 percent).
Fortunately, the forecasts were wildly off target. In the end, global remittances declined by only 1.7% in 2020 and in some regions, such as Latin America, they actually ended the year in positive territory. That trend accelerated sharply in 2021.
The adverse impact of the COVID-19 pandemic and Hurricanes Grace and Ida encouraged migrant workers from Mexico and Central America to send more funds to their struggling families back at home. Other big drivers include the recovery of job markets and fiscal and social assistance programs in host economies as well as the formalization of payment transfers, which mean the money is more likely to show up in official records.
Another key factor is the recent surge in northward migration from Central and South America to Mexico, the United States and Canada, as economic and political instability rises across the region. Venezuela, for example, saw a 664% increase in outbound migration between 2015 and 2020. In 2021, Mexico alone received ten times the number of migrants from Venezuela than it did in 2020, many of whom are trying to reach the United States.
More Migration = More Remittances
The total number of migrant workers in the world has more than tripled since 2010, from 53 million to 170 million, according to the International Labor Organisation (ILO). Migrant workers often end up doing jobs that are deemed essential, many of them low paid. In the U.S. “they have been in everything from cleaning services, hospitals and everything that provides services despite COVID-19,” says Sonia Plaza, co-chair of the World Bank’s Global Knowledge Association for Migration and Development (KNOMAD).
Demand for migrant workers could increase sharply in the coming months if the governments of advanced economies carry through with their vaccine mandates, thus consigning millions of unvaccinated domestic workers to the scrapheap at a time of acute labor shortages. They will include untold thousands of doctors and nurses. In their absence, the heath care systems of advanced economies will grow even more reliant on overseas workers — according to the United Nations, close to one third of all doctors in the UK and the United States are already from overseas — while exacerbating the chronic shortage of physicians in developing countries.
The arrival of more and more low-skilled migrant workers is also likely to further drive down the wages of low-wage workers in advanced economies while helping to drive up profits for wealthy corporations. As the U.S. immigration economist George J Borjas noted in a 2016 article for Politico magazine, while “the influx of immigrants can potentially be a net good for the nation, increasing the total wealth of the population… for many Americans, the influx of immigrants hurts their prospects significantly”:
When the supply of workers goes up, the price that firms have to pay to hire workers goes down. Wage trends over the past half-century suggest that a 10 percent increase in the number of workers with a particular set of skills probably lowers the wage of that group by at least 3 percent. Even after the economy has fully adjusted, those skill groups that received the most immigrants will still offer lower pay relative to those that received fewer immigrants.
Both low- and high-skilled natives are affected by the influx of immigrants. But because a disproportionate percentage of immigrants have few skills, it is low-skilled American workers, including many blacks and Hispanics, who have suffered most from this wage dip. The monetary loss is sizable…
[I]mmigration redistributes wealth from those who compete with immigrants to those who use immigrants—from the employee to the employer. And the additional profits are so large that the economic pie accruing to all natives actually grows. I estimate the current “immigration surplus”—the net increase in the total wealth of the native population—to be about$50 billion annually. But behind that calculation is a much larger shift from one group of Americans to another: The total wealth redistribution from the native losers to the native winners is enormous, roughly a half-trillion dollars a year.
There are other downsides and dark sides of the remittances story, which I laid out in the July 20, 2021 article, “Remittances to Latin America Surge, Even As Virus Crisis Continues to Bite in Host Economies“:
For example, there is the brain drain effect as many of the most skilled workers in low and middle-income countries move to host countries that offer better employment incentives and opportunities. If this process goes too far, it can exacerbate, rather than mitigate, inequalities between countries by depriving low-income countries of their best and brightest. Some countries end up facing acute labor shortages. The Philippines, for example, where roughly two in five qualified nurses end up working abroad, now has the lowest number of nurses per capita in Southeast Asia.
This can end up perpetuating a vicious cycle. The more that low-income countries function to provide cheap labor to high-income economies, the more difficult it is to develop a strong economy at home. As a result, yet more people leave for greener shores. Of course, there are myriad other pressures, pushing people in the Global South to migrate northwards, including climate change, resource wars and drug wars, political instability and all-round economic hardship exacerbated by the virus crisis.
In Mexico, remittances account for around 5% of GDP but in some states, such as Puebla, they can represent as much as 10% of total revenues. In smaller, weaker economies the degree of dependence is even greater. In El Salvador, Honduras and Jamaica, remittances respectively account for a staggering 26.2%, 26.6% and 23.6% of GDP. In all three countries remittances increased by more than 20% in 2021, in part due to the increased flow of migrants to Mexico, the U.S and other countries. If that flow of money were to begin to subside, the impact on those nations’ already fragile economies would be huge.
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I wonder if a large element of the increase in remittences is simply down to immigrant workers having more money to send because they aren’t travelling home, with all the costs associated with that?
Reduced travel is certainly a factor with remittances. Travel between the US and Mexico has been pretty much open since mid 2020, whereas land travel form the US to Canada was shut tightly until Fall and remains difficult even now. Legal status probably is the major determinant whether an immigrant is able to make a trip home in the first place. The change in the amount of remittances also would have been influenced by immigrants losing employment in 2020 during the shutdown and resuming work after.
Not just the costs associated with travel.
Everyone who travels home goes with up to $10,000 in cash plus suitcases and boxes stuffed with stuff bought more cheaply in the US (or just not available abroad).
So they’re sending remittances in lieu of bringing it in person.
I’m guessing that the large increase is also due to:
(1) people tended to spend less during the pandemic because they stay at home more;
(2) generous federal unemployment supplements in effect til September 2021;
(3) wage increases due to labor shortages.
I showed this article to my students (juniors and seniors in high school,) largely immigrants from Puebla, and they assert that a fair amount of it is because when we went remote, their parents sent them to work. Consequently, there was more money to send home.
This seems to be a really bad way to organize an international economy. So countries like Mexico are at the mercy of their citizens working in foreign countries who send money back to their families. The host countries, meanwhile, are dependent on cheap labour from those other countries to supplement their own own workforce. This of course only works when the world’s economy is going well. When it doesn’t or when it is disrupted by a general pandemic for example, that is when things goes south. So the past two years, a lot of those workers had to return home and could no longer send money home while the host countries suddenly discovered that they could no longer, for example, get those cheap nurses that helped run their healthcare systems. Helluva way to run a railroad.
This can end up perpetuating a vicious cycle. The more that low-income countries function to provide cheap labor to high-income economies, the more difficult it is to develop a strong economy at home. As a result, yet more people leave for greener shores.
In my 45 years of Building America, working with and alongside more and more of this Labor Pool, nothing rings stronger or truer.
And, dissappointingly, the way this has become embraced, formalized, and practiced in the Construction Industry.
And our kids see this through their parents eyes all the time–had an eighth grader, visiting on a field trip once, tell me that his family were ‘Brick Layers’ and always had been–but not him because his Daddy said “that since the Mexicans got the work there wasn’t any money in it any more”. Said it out loud and without hesitation–standing in a crowd of other eighth graders–including Latinos.
How do you respond to that? Saying it is complicated? Saying it is not that simple? Saying that you worry about yourself and your future and not about all that?
Of course there is a difference between legal, and illegal migration–slowly, and constantly, being blurred in countries with a ‘functioning’ system and even more so in countries without(like the usa).
Undifferentiated in articles like this(it is unwieldly to destrand).
Watching an already tenuous Construction Labor System(Career Path and Compensation) unravel, or being dismantled by Owners and Managers, over my career has been my biggest disappointment in my affiliation with the Building Industry.
Not mentioned is the starving of cash for American small businesses, the lack of local sales taxation, lack of spending and respending of that money over and over again through the Multiplier Effect.
The standard formula is that money recirculates 8 times before drifting out of a community as taxation and corporate profits elsewhere.
In 2019 68 Billion sent out of the U.S.
https://financepond.com/money-transfers/remittance-stats/
68 billion times 8 is 544 billion, not spent locally, taxed, used to hire locals, spent, taxed and respent. Food deserts, lack of local private investment, local jobs and inability of local workers to demand higher wages is one consequence of remittances.
I think sucking the money out of the US economy is, as they often say here, a feature and not a bug of the current system. By sending hundreds of billions abroad, would that not be deflationary in its effect on prices in the US market? Less money = less demand = lower prices for stuff. It helps to disguise the inflation that is created by printing trillions of dollars out of thin air which the government & federal reserve like to do. Less inflation means rates can be kept lower for longer, and more money can be printed, and that benefits everyone in our society in equal measure, so it’s a good thing.
When the US dollar travels abroad, it usually finds is way back to America via Wall Street, where they take a slice of the pie.
Well said. And it isn’t just bricklayers any more either. The world today is flooded with highly educated, brilliant and English fluent PhDs, engineers, programmers, accountants and lawyers who will work — harder than most of us could possibly imagine! — for a quarter of what the Western PMC classes think is an appropriate salary. In their home countries they’ll take far less, although the balance is typically raked off by some agency….
South Asians are the ones who stick out in terms of numbers and willingness to go anywhere (East Asians tend to gravitate to their own kind / their own businesses after a couple years out of uni), but this diaspora is of all colors: Spaniards, Belarusians, Egyptians, Filipinos, Brazilians, Tanzanians etc., heavily coming out of the old socialized polytechnic education systems (socialist bloc + social democracies
That’s what everyone is facing who isn’t either retired, highly localized, or a connected and ‘made’ servant of the ruling classes…. like that young couple (very bravely and capably, I must add) fighting ALS with all the connections, levers and privileges available to them. Which that elite class, btw, will fight tooth and nail to cling to, for themselves and their heirs.
But apparently not the brainwashed lumpen. Hired a fourth generation American 20 year old, whose parents are progressives, to do some gardening. At lunch break, we conversed about large numbers of immigrant day laborers and overcrowding in our town. “Doesn’t that make it better for everyone?” he asked.
I answered, “You either need to work twice as fast, or get paid half as much as I am paying you to compete with them. How do you feel about that?”
“That sucks man!”
Speaking of remittances being sent to Latin America, we should not forget the plight of Cuba. After being subject to US sanctions for most of the past 60 years, President Trump and his Secretary of State, Mike Pompeo, designated Cuba as a State Sponsor of Terrorism just days before leaving office. As a result of this last act of gratuitous cruelty, most travel from the U.S. to Cuba was barred as well as the sending of remittances to Cuba from relatives in the United States, a significant source of income for the impoverished island.
President Biden, has kept this ludicrous designation in place for Cuba, along with all the other Trump imposed sanctions on Venezuela, Iran, Syria, Yemen, as well as adding his own on Afghanistan that likely ensures mass starvation of the population.
The fact that the US government has been at war with Cuba for more than 60 years is often forgotten by American citizens. The job of Cuban-American representatives in congress (Cruz, Rubio, Menendez et al) is to keep this war going on and strong, forever. And the US and the corporate international media tend to ignore all of this.
The US sanctions against Cuba are tighter today than they were at any point in the past. Cuba has now the pandemic under control, after a surge in cases and hospitalizations during the first half of 2021 (the effect of Omicron is yet to be seen). This success has been possible to a great extent because of the effective vaccines developed and produced in Cuba by Cuban scientists and by the domestic pharmaceutical industry, and because of the reach and strength of a very damaged but still functional health care system.
Cubans today are exhausted and desperate, and the population is suffering greatly, with internal and external factors in the mix. However, the ferocity and effectiveness of the embargo should never be underestimated. That the Biden administration decided to keep the sanctions at the same level or even at a tighter level than what they were during the Trump years, tells you everything you need to know about this president and his foreign policy agenda.
For the US war against Cuba, this documentary provides a succint and very informative perspective:
https://www.bellyofthebeastcuba.com/the-war-on-cuba
Nixon’s directive to Kissinger about Chile before they murdered Allende in the early 1970’s was to “make the economy scream”. Sanctions didn’t work fast enough for the Chicago boys, so Allende had to die.
But making economies scream has been standard American policy for those who do not submit since then…if not well before. It also causes migration and the remittances.
The obvious advantage for oligarchs and plutocrats is that it creates economic refugees who fall into wage slavery. So it’s a win-win for those in charge. None of this foreign aid aimed at discouraging forced economic migration.
I had a discussion from a Nepali friend who discussed the overseas wage slavery for a quarter of that country’s population. The Nepalis rate overseas work situations and only the desperate or those without choice go to the Gulf Arab states where they are true wage slaves. The US, UK and northern EU countries are most popular as they encounter the more benign slave conditions in those countries.
Jefferson’s quote about a just God comes to mind.