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Global remittances are the oil that keep globalisation going

Money sent home by migrants provides a lifeline to some states and props up poor communities in many others

To see how remittances are changing the world, visit Vila Fabril, a suburb of Anápolis, a Cork-sized city a few hours south of Brasilia. Surrounded by coffee plantations and fields of soy and bananas, this small town, built in the 1950s to house workers from a huge meat factory that long dominated the local economy, stands out for its striking juxtapositions.

When I visited a few years ago, most of the houses were still old, mostly two-room shacks made out of exposed brick with corrugated iron roofs held down by concrete slabs. But every fourth or fifth house looked as if it had been transplanted from somewhere else: they were brand new, freshly painted in bright colours, the more extravagant surrounded by steel gates and with a gleaming new car in the garage.

These were the distant ripples of the Irish economic boom. Everyone in Vila Fabril had a family member, a relative or a friend living in Ireland. Returning emigrants spoke English with west of Ireland accents, and children wore GAA jerseys as they played on the dusty streets.

The Irish connection dated from the late 1990s, when a slump in Brazilian meat exports resulted in the closure of Vila Fabril's meat plant. One of the managers at the plant was Jerry O'Callaghan, an Irishman. Aware that the Irish meat industry had a shortage of skilled workers, he set in train the first migration from Anápolis to Ireland, when 25 local workers were taken on by Kepak in Clonee, Co Meath. Other Irish meat factories began to mine the same pool of workers. Among them was Seán Duffy Meat Exports in Gort, Co Galway, which brought six Brazilians from Vila Fabril to Co Galway in 1999 – the first link in a migration chain that would turn Gort into a hub for Brazilians in Ireland. Within a decade, 40 per cent of Gort's population was Brazilian.

Chief planks

Global remittances – money sent home by migrants – are the oil that keep globalisation going. They are estimated to have reached $689 billion last year, meaning they have overtaken foreign direct investment as the biggest flow of foreign capital into developing countries. Whereas once these payments were viewed as peripheral to the global development agenda, they are now one of its chief planks, providing a lifeline to some states and propping up poor communities in many others.

The individual figures are not large – the United Nations estimates that migrant workers send on average $200-$300, or about 15 per cent of what they earn, home every one or two months – but, as Vila Fabril illustrates, these flows are reshaping economies and communities. About one billion people in the world – one in seven – either send or receive them. India, the world's biggest remittance recipient, took in $79 billion in small individual transfers from emigrants to their families last year. Workers from Tajikistan are estimated to send home the equivalent of half the country's GDP.

Because remittances push up spending on imports, they act as a brake on the progress of domestic manufacturing in poor countries

That sort of dependence can pose risks for an economy. An economic shock in, say, the United States, is felt in the pockets of families across Latin America – suggesting that remittances can speed up the spread of economic instability. Moreover, some analysts argue that these wire transfers, by subsidising low incomes in developing countries, take pressure off those countries' governments to adopt policies that would stimulate growth at home. Another criticism is that because remittances push up spending on imports, they act as a brake on the progress of domestic manufacturing in poor countries.

Misgivings

But such misgivings are far outweighed by the overwhelming evidence of the positive effects of these money flows. About half of global remittances go to rural areas, where three-quarters of the world's poor live, according to UN data. Western Union, the biggest wire transfer firm, estimates that 30 per cent of the money is spent on education. That lifts people out of poverty and helps to make migration a choice rather than a necessity. Remittances are also more resilient than development aid because, whereas political crises and natural disasters can hinder official aid transfers, remittances tend to keep flowing even amidst chaos.

Far from seeking to staunch these flows, then, we should be making it easier to send money home. One way of doing that would be to reduce the exorbitant costs involved. Transfer firms charge between 9 and an eye-watering 22 per cent on each payment, with charges particularly high in sub-Saharan Africa. That's partly because banks have been reluctant to get involved in the business; their systems are designed for larger transfers, and the standard remittance model requires cash to be handled at both ends of the transaction. Onerous, if essential, money-laundering rules also deter new entrants.

Private players

Governments could take action themselves. In developing countries, for example, the authorities could stop agreeing exclusive partnerships with private players such as Western Union or Moneygram, which perpetuate their dominance - and their huge margins. But technology will also have a role. In a world of mobile cash transfers and blockchain, the remittance business surely cannot live in a time warp for much longer.

Making it easier to send that €100 from Gort to Vila Fabril would be a smart business and sound politics. It would also go a long way to making the world a more equal place.

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