Migrant Remittances and Development Republic of Moldova country

Migrant Remittances and Development Republic of Moldova - country experience Seminar Remittance flows from the Czech Republic and their development impact Prague, 24 February 2009 Ghenadie Cretu, International Organization for Migration, Mission to Moldova

Outline 1. Basic facts 2. Migration. Impact on development 3. Remittances: an Overview 4. Remittances: Impact on Economic Growth 4. 1. Positive Impact on Economic Growth 4. 2. Negative Impact on Economic Growth 5. Knowing remittances. Putting them to use 6. Policy Recommendations 7. Policy Instruments

Basic facts – International Organization for Migration, 1951 n n Managing Migration for the Benefit of All IOM – principal International Organization in the field of management of migration: – Assists in meeting the growing operational challenges in the field of managing migration – In-depth research and understanding of migration issues – Harnessing the economic and social development potential of migration – Upholding the dignity and well-being of the migrants GROWTH 1998 2008 Member States 67 122 Operational Budget (USD, mln) 242, 2 750 Field locations 119 400 Projects 686 1770 Operational staff 1100 5600

IOM Moldova country strategy n The IOM Mission in Moldova operates in supporting the country in managing migration for the benefit of all. IOM Moldova acts with its partners to: n n n Encourage the country’s social and economic development for effective management and more effective use of the benefits of migration; Advance understanding of migration issues; Protect the rights and dignity, as well as the prosperity of migrants. Main areas of activity: n Migration management; n Prevention of human trafficking; n Rehabilitation and reintegration of victims of human trafficking; n Labour migration and remittances; n Assisted voluntary return; n Migration and health.

Basic facts - Moldova n Area, sq. km - 33 843 n Capital – Chisinau n Population 2008, millions - 4. 3 n Urban/rural distribution – 46 % / 54 % n Total aid as proportion of GDP, 2004 (per cent) - 4. 5 % n Adult literacy (per cent) - 99. 1 % n Life expectancy at birth (years) - 70. 5 n GDP per capita, PPP (2008) - 2, 502 USD (compare with Czech Republic – 26, 800 USD)

Geographic location of Moldova

Main economic indicators n n n Inflation (2008)- 13, 8% Export - $1. 79 billion f. o. b. (2008) Import - $ 5 billion (2008); trade deficit – over 3 billion (Jan’ 09) Trade partners – EU – 51 %, CIS – 39 % Remittances (2008) - $ 1, 65 billion (37, 7% ratio to GDP) Unemployment (2007) – 5, 1 %, 25% labor force is abroad GDP by sector: agriculture: (17, 3%) industry: (21, 5%) services: (43, 3%) (est. 2008) Labor force: 1. 327 million (2008) Economy growth rates: 2. 1% in 2000, 6. 1% in 2001, 6. 7% in 2002, 6. 2% in 2003, 7. 3% in 2004, 7. 9% in 2005, 3. 1% in 2006, 7. 3% in 2007 and 7. 5% (est. ) in 2008. GDP in real terms in 1996 constituted 36, 0% compared to 1989. In 1999 GDP was only 33 % compared to 1989 The population income decreased to USD 318 per year in 1999

Migration realities in Moldova In Moldova, total number of emigrants grew from fewer than 100, 000 in 1999 to around 400, 000 by the end of 2006. The total number of labor emigrants is now estimated at around 345, 000 (IOM’s survey). Driving forces: • Pull factors: saving for household investments • Push factors: absence of a job; need to cover daily consumption • Inter-country networks: developed over time, facilitating migration

Distinction of major migrant groups by destination country and economic sector 1. CIS construction: workers in the construction industry in CIS countries (mainly Russia, Ukraine); Predominantly male, from rural areas, relatively low levels of education 2. CIS other: other workers in CIS countries (mainly Russia, Ukraine); Half are women, mainly from rural areas, considerably higher level of education 3. EU (=EU 25): main countries: (Italy, Portugal); More than half are female, higher share of urban migrants, high level of education; Moldovan migrants in Czech Republic: ~10, 000; permanent residents: ~2, 000; other status: ~8, 000; female-3, 500, male-6, 500 4. Other: main countries: (Turkey, Romania); Predominantly female, half from urban areas.

Main migrant groups • Labour migration profoundly affects the economic and social development of Moldova. • As of mid-2008, approximately one quarter of the economically active population was occupied abroad. • About 100, 000 individuals have left Moldova permanently since 2006 • Of these, approximately 60, 000 individuals belonged to households that completely relocated from Moldova to another country

Legal and illegal migration Illegal residence status has become more widespread in CIS countries while the situation has improved in the EU and other host countries Illegal residence status puts migrants at greater risk of arbitrary treatment by local authorities, swindlers, exploitative working conditions, etc. Illegality reduces benefits from migration, but also the incentives for remaining abroad permanently. Migrants who stay in their host country for an extended period often manage to obtain legal status: 65% of illegal migrants in 2006 became legalized by 2008

Migration: Impact on Development Positives: n Economic gain - remittances, investment etc. n Labor market and employment opportunities abroad (enhanced mobility of labor force) n Migration can empower women/other groups n Impacts on social institutions - origin & destination countries n Migrants as development agents (human, social capital, skills, fostering innovation, progress and advancement) n Diaspora as a source for economic and social development n Return (brain circulation) can maximize developmental impacts of migration by transfer of skills n Equalizing effects on income of origin countries

Migration: Impact on Development Negatives: n Brain-drain (loss of human capital, including highly qualified specialists); n Social: torn families, children left behind, weakening the social protection system n Inflation impact on economy/pressure on currency exchange rate n Increased inequality/disparity in incomes n Creation of a “tradition of migration” n Irregular migration harms inter-state relations Remedy: a comprehensive migration policy needed at the national level, supported by appropriate legislations and implementing mechanisms

Remittances: broad trends In Moldova, remittances reached US $ 1. 2 billion in 2007 and $ 1. 65 billion in 2008 (National Bank of Moldova data on formal transfers data); ratio to GDP– 37. 7%, one of the highest in the world. Total sum of remittances (including via informal channels) is estimated at $ 2 billion in 2008. Remittances have exceeded total exports and exceeded by 50 % the merchandise exports (NBM, 2008, QIII).

Remittances: data collection • National Bank of Moldova: aggregate estimates of remittances are based on balance of payments • Balance of payments must add up to zero - plausibility check of estimates, particulary of remittances transmitted to Moldova as cash foreign exchange • Remittances are calculated by adding two posts in the balance of payment: compensation of Moldovan residents employed abroad + transfers from migrants permanently residing abroad. • Surveys that ask respondents about their income or remittances typically underestimate income flows (e. g. income and expenditures surveys like the NSB Household Budget Survey – HBS). • Understandably, people are reluctant to talk to strangers about their personal finances. • Ex. in the 2006 IOM survey, of 1, 020 households that said they received remittances, only about 600 indicated an amount.

Remittances: Average remittances per remitting migrant (IOM Survey) • Average remittances in nominal US$ terms as indicated by respondents increased slightly. • US$ 1, 296 in 2006; US$ 1848 in 2008 • However, inflation in Moldova and the appreciation of the Leu have eroded most of these gains. • Remittance levels strongly depend on the country the migrant is working in. They are highest for migrants in Europe and lowest for migrants in Russia or Ukraine

Remittances: transfer channels • The use of formal transfer channels (money transfer operators, bank transfers) has grown further. • Lack of information, complicated procedures, lack of trust in formal systems, lack of outreach in rural areas • The share of migrants using primarily informal services (maxi taxi drivers, etc. ) declined from 20. 4 percent in 2006 to 11. 8 percent in 2008. • Furthermore, a large proportion of informal transfers involve migrants taking money home personally, rather than using informal thirdparty services (maxi taxi drivers, etc. ).

Remittances: households dependence 1. 3 million people (35 percent of the population) live in households that receive remittances. In 56, 2 % of households receiving remittances, the transfers account for more than 50% of the household budget (in rural areas the share is 58, 3%). Remittances take a big share in the overall income composition, 18 per cent.

Remittances use n Most remittances are used for consumption needs n Yet, there also signs that households with remittances invest more: Whereas only 15% of households without migrants have savings which exceed US$ 500, this share is 29% for migrant households n There also signs that remittances promote financial sector development as more migrant households have a current account with a Moldovan bank (13 versus 8%) n Most of the households receiving remittances are saving, yet only 18. 5 % of these are saved in bank accounts and less than 7 percent, are used to finance business investment.

Poverty impact of migration/remittances n n n Migrant households are considerably less poor than non-migrant households The poverty impact strongly depends on the area of destination (largest for EU, smallest for CIS con) Remittances reduced the national absolute poverty rates by 11. 3 percentage points The impact is higher in rural areas, lowering the poverty rates by about 13. 6 percentage points. On macro level, remittances produced a decrease in poverty rates, as well as contributed to wages growth

Remittances: Impact on development Beyond poverty reduction n n The effect of remittances on development remains a widely debated issue: – Positive : foster poverty alleviation, increase productivity and investments, promote economic development, augment national savings, ease foreign exchange constraints, improves the country credit rating and access to financial markets, covering the foreign trade negative balance, creation of new jobs, small business developed, bank deposits increased ease the credit crunch, multiplier effects simply by increasing households income, secondary demand effects (real estate) – Negative: create dependency, wealth disparities, currency appreciation, inflation, displace local jobs, higher import content of consumption, encourage further migration and may cause labour shortages, forced consumption because of lack of investment opportunities. Remittances alone do not lead to development and economic growth, and their impact depends on micro- and macro-level factors of the economies of host and home countries. – Therefore, migration cannot be considered to be a universal solution for addressing all developmental problems.

Remittances. Policy issues n n n Key Problems: - Private nature of remittances - Entrenched policy environment poses a problem, esp. in countries of origin - many remittance senders and receivers remain outside the formal financial system - Financial access and financial literacy Guiding Principles: - Be cognizant of the importance of ending the dependence on migration and remittances - Do not regard remittances as the key instrument on par with traditional forces like exports and FDI Main Policy Directions: – – n Create a sound policy environment Reduce transaction costs Encourage productive use Improve data collection on remittances Because of the large role of remittances in reducing poverty at the household level, policies should not focus on migration prevention, but rather on helping migrants to maximise the gains from migration.

Policy Recommendations by IOM. Moldova’s experience Main policy directions of the Government: n n n n To create effective mechanisms for management and monitoring of migration flows To improve the reliability of migration and remittance data and the capacity of the government to collect, share and apply such data To improve the knowledge and capacity of migrant workers and their families to channel and use their remittances for productive investments To improve the linkages of the Government with Diaspora To improve remuneration of labour and a continued increase of state guaranties in this area To promote voluntary return migration and reintegration programs To create an enabling environment for SME growth To promote mobility of labour force/circular migration

Policy Recommendations by IOM. Moldova’s experience Conclude circular migration agreements with the main destination countries, similar to the one that was recently reached between the EU and Moldova: - Certain professionals of Moldova to be offered facilitated access to labor market of interested EU member states; - Migrant’s return to Moldova upon the end of legal stay will facilitate his/her subsequent migration to interested member states; and - Circular migration can augment the positive effect remittances have on economic growth. Main challenge for Moldovan government: advocating for policies that benefit migrants and Moldovan society as whole, while taking into account sensitivities in host countries

Policies required to enhance the productive use of remittances. Moldova’s experience 1. Encouraging the use of official transfer channels and increasing trust in banking institutions by improving financial literacy through public-private partnerships; consumers need to be educated about existing remittances services 2. Reducing informality, improving competition and reducing transactions costs by: i) expanding the intermediation of banks, microfinancing agencies, credit and savings associations, post offices, in the remittances area and by ii) adopting new remittances-transfer technologies 3. Improving the terms of the payment and settlement system for money transfers to reduce the remittances transaction costs 4. Engaging diaspora in homeland development by supporting business investment plans and partnerships with Diaspora 5. Facilitating linkages between remittances and financial services (loan products linked to remittances e. g. mortgages; savings products with attractive interest rates, easing of credit policies)

Policies required to enhance the productive use of remittances. Moldova’s experience 5. Implementing migrant outreach policy, stimulating confidence about homeland building migrant partnerships 6. Matching remittances with other funding sources and orienting them on community development 7. Creating favorable regulatory and macroeconomic environment 8. Facilitating increased investment of migrant resources in SMEs by improving the SME regulatory and institutional framework, offering t ax incentives, one stop shops, entrepreneurship training 9. Improving data on remittances by expanding and improving remittance data collection practices, research, analysis, policies, and procedures 10. Improving the remittance providers services to the poor, including via new products and technology

National Strategy Documents adopted following IOM policy advice n EU – Moldova Action Plan (cooperation in justice and home affairs: migration issues) – implemented; new instrument being developed n National Return Action Plan n National Strategy for Support and Development of SMEs for 2008 -2011 n Mobility Partnership EU-Moldova

National Return Action Plan Creation of incentives for return of Moldovan migrant workers. Main objectives: 1. Provision of information on the job/business/social reintegration opportunities in Republic of Moldova; economic empowerment progr. 2. Strengthening the links with Moldovan nationals abroad 3. Provision of socio-economic reintegration services to returnees 4. Developing entrepreneurship culture so as to attract remittances into the productive areas: a) referring the beneficiaries of remittances towards the opportunities of launching a business; b) providing assistance and consultancy on launching and managing small businesses. 5. Enhancing the business environment and opportunities in rural areas: a) granting methodological support and contributing to attracting remittances for setting of up small, poultry and livestock farms; b) developing pilotprojects in rural tourism development, as well as other sectors, including projects for social infrastructure support (matching funds 1+1); privatepublic partnership mechanisms for funding infrastructure objects 6. Concluding agreements with post-office administrations from the countries of destination so as to facilitate the implementation of the “Electronic International Money Orders” service; developing and implementing the normative framework regarding monetary payment of the international money orders also in foreign currency (USD or EURO);

National Strategy for Support and Development of SMEs for 2008 -2011 Overall: improvement of the legislative and normative framework that would be favorable for small and medium enterprises’ establishment and development Specifically on remittances: Enhancing financial mediation within remittances transfer options: n Training migrants-users of financial-banking services regarding the provided services; n Building capacity of the micro-financing organizations and of the Savings and Credit Associations with respect to provision of remittances’ transfer services; n Involving the “Post of Moldova” in the system of remittances’ transfer and payment in national and foreign currency; n Setting up a scheme for loans’ guarantee based on remittances.

National Strategy for Support and Development of SMEs for 2008 -2011 Adopting new technologies for remittances’ transfer: n Setting up legal framework for facilitating and securing the remittances’ transfers through new technologies. n Implementing a pilot project on money transfer banking services via cell phones; n Diversifying and improving financial services, increasing competitiveness and reducing the costs of these services (promoting ‘account on account’ system, ATM machine – remittances, internet payments e. g. Pay. Pal) Developing and implementing the 2+1 Program for Remittances’ Investment Improving accuracy of statistics and studies regarding migrants and remittances; harmonizing and adjusting migration study methods used by different involved institutions

Mobility Partnership EU-Moldova n n n Council of EU for JHA from 6 -7 December 2007 - initiating the dialogue with the Republic of Moldova to launch a pilot mobility partnership Concept of “mobility” is becoming a key element for the development of the EU migration management strategies Mobility partnership represents an overall political framework Aim: develop a balanced partnership with third countries adapted to specific EU Member States' labour market needs Broad, tailor-made and balanced agreement and include elements of mutual interest for Moldova and EU: legal migration, fight against illegal migration, migration and development, circular migration The parties to a mobility partnership, on the EU side, include both the European Community and Member States willing to participate in and contribute to it. Czech Republic is part to the MP

Mobility Partnership EU-Moldova Specifically on remittances: n n n Enhancing the cooperation with Moldovan communities abroad, strengthening the links with the diaspora and reaching out for its support; Working on the financial sector to create the conditions for boosting the diaspora's investment in their home country through twinning projects, loan and transfer facilitation and targeted remittance schemes enhancing the development impact of migrant workers' money transfers; Proposal by Romania together with the Veneto Region in Italy to design a Financial Instrument for Self-Employment and Small Business Development with a view to encouraging migrants to invest remittances, particularly in local communities, and to return to the Republic of Moldova. Proposal by Germany to extend the remittances website www. geldtransfer. de. launched as part of the G 8 Conference on Remittances in late November 2007 in Berlin. Proposal by Sweden to facilitate exchange of experience and study visits on development policy (including policy training on remittances).

EC Aeneas Remittances Project n EC Aeneas Project “Beyond Poverty Alleviation: Developing a Legal, Regulatory and Institutional Framework for Leveraging Migrant Remittances for Entrepreneurial Growth in Moldova” n Main activities, aimed at enhancing the impact of remittances on economic development by facilitating increased investment of migrant resources in SMEs: 1. Development of a National Remittances Programme Capacity Building for the Ministry of Economy and Trade Improving Remittances Data Collection Improving Financial Literacy of Migrant Workers and their Families Facilitation of Linkages of Remittances with Financial Services Building Bridges with Diasporas 2. 3. 4. 5. 6.

Thank you! Ghenadie Cretu – gcretu@iom. int