MIGRATION AND DEVELOPMENT OF LOCAL ECONOMIES OF SENDING COUNTRIES: THE PHILIPPINES’ PERSPECTIVE I. F. BAGASAO, Economic Resource Center for Overseas Filipinos (Geneva and the Philippines) A paper presented at the MIT Conference on Public Policy, Migration and Development, October 31 to November 1, 2003, Boston)   Introduction. This paper starts with a brief discussion on Philippine migration data. It will discuss the positive impacts as well as the major problems, concerns, issues and costs of migration in so far it is perceived to affect the country’s ability to leverage migrant remittances and resources to contribute to its long term growth and development. It will cite some government and civil society initiatives to tap migration’s gains to impact on development. It will then close by citing some work in progress that are designed not only to complement existing initiatives, but also address the critical need of organizing and directing the strategic use of migrant resources to accelerate the development of local economies. The subject of migration has recently aroused widespread global interest as it is emerging as a new development paradigm. Annual remittances to developing countries have more than doubled between 1988 and 1999. Officially reported migrant remittances have been approximately 20% higher than ODA, with the gap still increasing. Today international agencies, financial institutions, development agencies , academic and social institutions are supporting serious studies and forums to examine the untapped potential for development that the gains of migration could generate to develop local economies of migrants’ countries of origin.    Related Information

The processes of migration and development involves gains and benefits, losses and costs, among not only the sending and receiving countries, but also to the migrants themselves, their families and the communities they have left as well as the new ones they have formed overseas. Migrant literature at least in the Philippines suggests that overseas workers have a high personal stake in migration ,as they personally shoulder most, and at times, all, of the financial, social and other costs relating to migration, yet are exposed to the vagaries and abuses in foreign workplaces, and for large numbers, with the least protection.

I am encouraged by the underlying themes of this workshop which seeks to explore how future policy initiatives could factor in emerging or potential best practices on harnessing the gains of migration for development. It is an indication that perhaps the contributions of the biggest stakeholders in the migration process are now being given recognition and their views considered in the shaping of policy. It also makes good sense because remittances are a more constant source of income to developing countries than other private flows and foreign direct investments, and decisions by migrant to submit a share of their income to countries of origin are affected less by international financial aid and market crises than the decisions of private investors and speculators(Gammeltoft). It must be emphasized that only governments and investors have a say as to how ODA and foreign investments are used or are accessed by those who are in urgent need. On the other hand, migrants are in a position to decide how remittances are used, not only for their families, but for larger community interests without having to wait for development to trickle down to their level. This initiative is also very timely, as it coincides with forums and initiatives being undertaken in the Philippines to review and formulate a national comprehensive migration policy for the Philippines. The outputs that we may generate here will most certainly find their way in our own discussions at home.

Philippine Migration Data.

The Philippines is now the 2nd, if not the highest migrant sending country worldwide, with almost 9% of its 82.8 million population living and working in at least 150 countries worldwide, and a majority of whom are in North America, the Middle East, Australia, Europe, and the newly industrialized economies of Asia. Filipino seafarers comprise more than one fourth of the entire merchant marine fleet in the world which is about 1.2 million, with 2\3 of them on board European owned ships. The Philippine government itself estimates that there are about 800,000 annual departures or about 2,500 Filipinos who leave daily to seek or occupy overseas positions.

From the USD103million recorded in 1975 or about the time that the Philippines started its overseas employment program, annual remittances as of 2002 have almost reached the level of USD7billion, making the Philippines the 3rd largest recipient of migrants remittances, next to India and Mexico. The Philippine Central Bank estimates that if money flowing through informal channels are factored in, actual remittances could reach USD10 billion, implying that 70% of remittances flow through formal channels while 30% are sent through informal channels.

Impact to Families. Migrants remittances are the main or primary source of support of about 6.2% of Filipino families, a figure that translates to about 881,263 families or households. These are used primarily for (1) Basic household necessities (2) Payment of debts contracted to underwrite migration expenses (3) Education of children (4) Medical expenses or emergencies (5) Housing (6) Purchase of appliances and other durables (7) Savings and investments in microenterprises. Admittedly the economic standing of many Filipinos have improved because their breadwinners had earned salaries overseas many times over what they could have earned in the Philippines.

Impact to the Country. Migration eases the burden of government in dealing with high unemployment rates, as well as acts as a buffer to balance of payments deficits. In the year 2000, remittances constituted 14% of exports of goods and services, 1047% of ODA and 8% of GDP. (1) More than that, they come as net foreign inflows, meaning that unlike exports which have a high import content, they come free of charge to the benefit of banks and financial institutions, who usually have to buy foreign exchange to finance the needs of exporters.

Migrant Related Initiatives for Local Development.

Diaspora Philanthrophy.

The repatriation of remittances, resources, as well as skills and technology, beyond what directly benefits their families, has been a tradition among Filipinos. This might be attributed to strong family ties that characterize Philippine society and may be done , to show economic achievement or a sincere desire to contribute to uplift economic conditions of the country to which they wish to return to and retire in the future. Over the years, individual migrants as well as regional, social, civic and other migrant associations, have long been raising funds to underwrite small infrastructure projects and other humanitarian causes in the Philippines. The Commission on Filipinos Overseas, a Philippine government agency has run a 12 year program that has mobilized from Filipino expatriates in North America, Australia and Europe, the amount of over a billion pesos, that have gone into various community projects of needy and depressed areas, in accordance with a needs profiling system that they had devised. This is probably only a fraction of what has been remitted over the last 50 years. The CFO also has facilitated countless medical missions, exchange or posting of students, scholars and scientists in the Philippines from the extensive pool of Filipino professionals abroad.

(1) World Bank Economic Development Indicators, as quoted by Orozco. Worker Remittances: The Human Face of Globalisation, InterAmerican dialogue, IADB, October 2002)

Reintegration.

Government.

Both the Philippine Department of Labor as well as migrant NGOs based in the Philippines and overseas, have their own initiatives to help migrants prepare for emergencies, or in their return or reintegration to Philippine society. To begin with, the Overseas Workers Welfare Administration(OWWA) administers a fund pooled from migrants workers contributions that assures certain entitlements or benefits in the event of sickness, hospitalization, emergencies, death or untimely repatriation. Loans for livelihood, skills training and scholarships for returning migrants and their families were also covered by this fund.

Other government agencies have introduced savings and investment schemes that could cover migrants’ social security and housing needs. For instance, the Philippine Social Security System set up in 1997 a provident fund called SSS Flexifund which aside from retirement and social security benefits to members, allows flexible contributions and terms of withdrawals and guarantees higher and safer returns of earnings which could be withdrawn anytime with interest. A simulation of yield indicates that members with a Php2,000 monthly contribution would receive about Php349,000 after 10 years and a million after 20 years. Starting its operations in Hongkong in January 1998, by 2001, 55,000 members or a third of the Filipino migrant population in Hongkong had enrolled.

The government housing agency has also linked its programs to migrants. The program allows members who make monthly contributions in dollars or pesos, to borrow money to purchase a house and lot or renovate an existing one. Savings may be withdrawn at theend of 5 to 10 years. IN 2001, they issued Php2 billion worth of 5 year bonds at thousand denomination of 5, 10, 50, 100, 500 and 1 million, with a fixed interest rate of 8%. Peso denominated contributions earn interest at 7.5% while US dollar contributions are at 3%.

NGOs.

Sometime in the early 1990s, migrant service organizations in the Philippines as well as overseas, started to focus on migrant economic concerns. Their years of experience in migrants rights protection made them realize the excessive spending by migrants and their families on non-essentials, and a lack of awareness on saving and effectively managing these savings as a source of enterprise capital on their return.

Two of these organizations started to conduct awareness raising on the savings, value formation, and investments in enterprise to prepare for their return. Migrant savings groups in Hongkong, Italy, and Japan were formed, and which consequently invested the accumulated savings in enterprises of their choice within their regions or hometowns.

Last year, several NGOs, together with government, organized a consortium of reintegration practitioners in order to advocate for the inclusion of what they had termed as a Comprehensive OFW Reintegration Program, to be included not only as part of the country’s national development program, but even as part of the development plans of local government units. The plan calls for the concerted efforts of migrants, civil society organizations both tin the Philippines and overseas, local government units, enterprise development centers, schools, churches to create an enabling environment for a comprehensive reintegration program for Filipino migrants.(2)

Government Incentives to Attract Investments.

Over the past 20 years, the Philippines has gradually built up legislation designed to tap the resources of its extensive diaspora. These laws invariably contain tax breaks, import incentives and privileges to former Filipino citizens who may wish to buy property or engage in nationalized enterprises. Unfortunately no organized data is available to measure how effective these laws have been in attracting expatriate capital, neither do we also see extensive evidence that large numbers of migrants have taken advantage of these incentives.

Nevertheless it has been said active government attempts to encourage or require investment of remittances are unlikely to have significant economic benefits, and that the best way for recipient country governments to ensure that a greater proportion of remittances are utilized for productive investments than consumptive use, is “to have a supportive economic environment for investment per se.(Kapur). A tall order, this, as it is the equivalent of solving the sending country’s economic and structural problems. Let me briefly cite what these are at home.

(2) Concept Paper, Towards Creating an Enabling Environment for a Comprehensive OFW Reintegration Program, First National Conference on OFW Reintegration, April 12-13, 2002, Manila)

Obstacles to Harnessing Philippine Migrant Resources for Productive Use

Structural Problems. Migrant sending countries have to deal with its own economic, political and social problems, many of which are possibly the reasons why there is extensive migration. In the Philippine case, these relate to the lack of effective governance, , a long festering secessionist war in the South, a huge foreign debt and the effects of globalisation on agriculture and local industry.

The influence of some of these factors could be felt no less than in the government’s own program to repatriate donations from its diaspora, as expressed in an evaluation by the Commission on Filipino’s Overseas Linkapil program, which as previously discussed had facilitated and monitored some Php1,187 billion worth of donations from expatriate Filipinos from 1990 to 2002. The complex process of sending and receiving foreign donations involving no less than 9 government agencies, insufficient information dissemination, and the taxation of donations that eventually get passed on to beneficiaries who could not afford to absorb the tax, often discourages most overseas donors from extending assistance to their selected or identified beneficiaries.(3)

As shown by Figure 1, Donations Coursed thru the Linkapil Program from 1990 to 2002, shows that the bulk went to Health/Medical(58%), Relief/Calamity Assistance(24%), Education/Scholarship(15%), which is not surprising, given the little that is left with government for public services, after allocating a third of its budget for foreign debt payment and other resources wasted or lost through bureaucratic inefficiencies. Figure 2 shows the Filipino community in the USA as the largest source of these funds.

Culture of Remittances/Population . Despite its gains, migration may also have perpetuated inequitable growth and spawned a culture of dependence on remittance. As Prof. Ranis has warned, “may allow us to postpone painful but necessary reforms that will lead us to the proper growth fundamentals. “ Migration thus becomes the raison d’etre of more migration, like a giant snowball that expands geometrically with its circumference. That is until the opposite forces of economic growth at home reaches sufficient strength to oppose it. ILO studies indicate that the migration transition only occurs once a country crosses a threshold of about USD5,000 per capital. Unless therefore the Philippines slows down the growth of its population, its economy will have to grow at a rate of 10% a year over the next 23 years if it is to reach that threshold. Unfortunately, Philippine population is growing at twice the rate of growth of that for the Asian region, while the rate of savings remains half of that of its more successful neighbours. (Abella)

3. Harnessing Overseas Filipinos as Partners in National Development, an unpublished paper by the CFO, 2003.

Brain Drain. The drain of often the best and the brightest, from a sending country reduces the country’s capacity for long term economic growth and human development. Filipino migrant workers have an overall literacy rate of a high 96.1% which is much higher than the 92.28% national literacy rate. One of the areas most affected is the medical profession. A speaker in a Philippine forum on migration held last week quoted studies showing that the estimated benefits that have accrued to the United States ever since Filipino doctors migrated to the US has been more than total US official development assistance for the same period.(4) With over 150,000 Filipino nurses now working in hospitals and other health-care facilities overseas, the workforce of local hospitals are being depleted.(5)While it may be said that the situation could address the sending countries’ lack of capacity to absorb surplus labor, it may also be true that majority of these professionals would probably not have left had there been local opportunities which offered financial and professional advancement, and that the cost of education have been shouldered at much private and public cost on the part of the sending country. (6)

Organising Migrant Remittances and Resources for Strategic Development.

Migration policy must be shaped through concerted action between government, the private sector, and civil society, to adopt a wholistic approach that addresses all the above factors. It is necessary to come up with innovative ideas that act as safety nets to these structural problems, but should also identify priority areas traditionally neglected due to inefficiency or lack of capital. In the Philippine perspective, the focus should be on the informal sector and the countryside , where there is high poverty incidence, and where incidentally most migrants originate. Why the informal sector? First because it absorbs all the victims of globalisation-the displaced workers, forced retirees, educated unemployed, etc. Second, because it is the womb of small entrepreneurs. Self employment and small scale entrepreneurship is the coping mechanism of poor countries in the era of accelerated globalisation. Third, because the active promotion of rural industrialization will complement informal sector entrepreneurship (7)

4. Presentation by Dr. Federico Macaranas, Chair, AIM Public Policy Center , at the Forum on Migration, October, 2003, Makati City, Philippines, convened by the CFO and the Asian Institute of Management.

5. Sustainability and Retention, RX for RN Shortage, Balikbayan Magazine, Vol. 1, No. 5, May 2003

6. For the OECD countries as a whole, there are around three million migrants with a tertiary education. It has been suggested that if it costs say USD20,000 to educate someone to this level, then the total wealth transferred from poor countries to rich is roughly now around USD60 billion(Stalker, Presentation at the NOVIB Experts Meeting on Globalisation, Migration and Development, March, 2003, The Netherlands)

7. Yuzon, I., The Informal Labour Sector Amidst Globalisation, Intersect Magazine, June 2002).

Initiatives must also have economies of scale to have a significant impact on the development of local economies. The design of programs linking remittances to development are necessarily influenced by the occupational and compensation level of the migrant. Taken from experience of two NGOs in Hongkong which pioneered in forming migrant groups of domestic helpers for savings mobilization and alternative investments, the potential amounts that could have been mobilized was ultimately affected by their need to remit 88% of their earnings for their families basic consumption needs and payment of debts incurred for migration, and set aside only 12% for investment. (8)

The initiatives taken by government and civil society are steps in the right direction but could still be maximized. For instance, migrant savings and investments that are organized or pooled, managed professionally, and employed in critical and strategic infrastructure in order to improve productivity, address production and market inefficiencies and help producers improve and find markets for their products, could accelerate the process of translating migrant gains for local economy development.

Strategic Use of Migrant Remittances.

There are some potential prospects that may address these imperatives where migrant remittances could be parlayed to serve as engines of growth. I would not say these are emerging best practices but they present a fresh alternative to the traditional trickle down approach and excessive dependence on foreign direct investment and official development assistance. Although it is work in progress, allow me to share some of these initiatives being undertaken by local government units and supported by civil society organizations:

1. Local Government Initiatives.

Promotion of Trade and Investments at the LGU level.

Certain local government units(lgus) on their own, are initiating programs to lure their natives overseas to visit and explore trade and investment possibilities within their territory. With the help of international institutions and civil society organizations, they are promoting trade, investments and tourism to outside visitors, through the organization of trade and tourist promotions overseas, and have legislated a local investments and incentives code that is being implemented by an investments office. For instance, this year, the province of Bohol held a trade and investments fair attended by hundreds of their overseas natives from North America who came to visit their hometowns and participate in an investment matching forum.

8. Empowering Filipino Migrant Workers, Final Report, 2001, Philippine Department of Foreign Affairs-ILO Study)

Raising Revenues for Rural Infrastructure.

LGUs are improving their skills on local governance and are beginning to learn how to raise revenues independent of the national government, a power granted to them by a 10 year old decentralization law. Today, about 10 LGUs have raised funds through bond issues at the local level in order to build public markets, cold storage and post harvest facilities, wharves, tourist facilities and convention centers and other rural infrastructure, and there are 40 more lgu projects in the pipeline. This was done with the help of a financial management firm that has pioneered in the use of bonds for local development. While these bond issues were normally underwritten by commercial banks, a special bond issue is being designed with overseas Filipino workers as potential investors of bonds issued by their own hometowns, whose needs they could readily identify with. (9)


2. Migrant Investments in Microfinance.

Microfinance has a role in the development of local economies, in answer to the a question posed by a recent ILO study10. . There are current initiatives and studies being designed not only to tap microfinance institutions as remittance centers, but also to attract migrant Filipinos to place their savings and investments in microfinance institutions, where the major players are mainly rural and thrift banks, NGOs, cooperatives and other community based financial institutions. Collectively, microfinance organizations service close to 500,000 microenterpreneurs. Even the government’s microfinance arm, the PCFC, are serving 79 provinces, 113 out of 114 cities, and 1,083 out of 1,496 towns. (11)

Microfinance reaches out to more marginalized people and others in the informal sector and even returned migrants whose only coping mechanism may be engaging in microenterprise. Studies show that a large number of migrant enterprises resulted in failures because they were the result of speculative or unreliable information, and the lack of proper business skills, commitment or values by the family members who were appointed to run them. Linking migrants and their families to microfinance institutions may provide migrant families the business mentoring and access to capital which may precisely what an absentee migrant needs to make sure that money remitted is used productively and not wasted on non-essentials. Besides, studies currently being undertaken indicate that migrants or their families could save or invest in microfinance banks or institutions and still manage a rate of return that is comparable to what commercial banks offer, in addition to helping the creation of more jobs. The participation of microfinance institutions contributes to the imiprovement of the country’s savings rate and contributes to the expansion of a more extensive network of financial intermediaries with yet new financial products that will help leverage remittances for broader economic development. (12)

9. Dr. Sixto K. Roxas, OFW Trust Fund, Presentation at the ERCOF Conference on Programs to
Harness Migrants Resources for the development of Local Economies, July 2003)

3. A tripartite partnership between Filipino Migrants, LGUs and Development Agencies.

To facilitate capital buildup and encourage more stakeholders in development, pilot projects are being undertaken which feature a partnership between Local government units, development agencies, who put up financial or other counterparts to the savings, investments or donations made by Filipino migrants in their communities. Three of such projects are underway, with 8 more in the process of formation in different parts of the country. Development agencies have indicated interest in putting up counterpart funds to the money pooled by migrants for use in microlending and other community development projects.

Suggestions for Future Studies and Directions.

Focus on Technology Transfer. I may be mistaken but it would seem that the current interest is more on the pecuniary value of migration, while remittances are only one resource that could be transferred by migrants. The others are technology and skills, as well as so called social remittances or the flow of ideas are yet another focus of attention, that could perhaps be initiated by a group such as this with the support of the MIT Globalisation Project. Programs such as Transfer of Knowledge Through Expatriate Nationals(TOKTEN) or the Science and Technology Advisory Council(STAC), an informal group of Filipino professionals overseas, ought to be revived and supported by networks, even by the government.

As a migrant sending country, it would seem that the Philippines has a mixed record-it appears it is both a giver and a receiver of technology. I actually do not have the list with me but there is extensive anecdotal evidence that show technology developed by Filipinos or in the Philippines that had profited many other countries. Inventions such as the lunar rover, the fluorescent lamp, the karaoke, miracle rice, herbal concotions and even agricultural marketing programs and war strategies, and hundreds of other skills or inventions, have found their way overseas. Why the Philippines has not been the prime beneficiaries of indigenous technology may have something to do with the inability of the country to support and protect its inventions and homegrown technology but which were more forthcoming from developed countries which had the funds and the facilities to exploit these technologies. Perhaps policy interventions could be initiated to develop a forum as well as a fund to identify , support and protect inventions, technologies, processes and ideas from migrant sending countries.

10. Puri and Ritzema,
11. Josaias dela Cruz, President, Opportunity Microfinance Bank, Presentation at the ERCOF Conference on Programs to Harness Migrant Resources for Development
12. Kapur, D., Remittances: The New Development Mantra, p. 28.

More Studies on Migrant Benefits to Receiving Country. The constant association of migrants with criminality, and increased social and economic burdens to the receiving country, has provoked and engendered more restrictions and therefore the denial of rights to migrants, even discrimination. There is more than overwhelming evidence of the benefits to the receiving country as a result of the work of migrants, They not only made up the shortfall in labor(both skilled and unskilled) but they also contributed to the local economy as consumers and investors, taxpayers even, and in other ways than receiving countries would care to admit. Despite such positive effects on the host economy, international labor mobility is and continues to be severely curtailed. Maybe it is about time to attain a balance by not only discussing migration’s gains to sending, but likewise to the receiving country.

Thank you for inviting me to speak and for the opportunity to share and learn from distinguished colleagues.
 

BIBLIOGRAPHY

1. Manolo Abella, “Filipinos are bound to be a Global People” A speech delivered during the Outstanding Overseas Filipinos Awards, Manila, Philippines, November 2002)

2. Bangko Sentral ng Pilipinas, Selected Economic Indicators.

3. Bohol/Philippines, for business ventures, holiday adventures-an LGU brochure)

4. Commission on Filipinos Overseas Linkapil Program Manual.

5. Department of Foreign Affairs, Final Report on Empowering Overseas Filipino workers, 2001, DFA-ILO.

6. Ericta, Carmelita, et al., Profile on Filipino Overseas Workers(Results from the 2000 Census of Population and Housing, NSO), October 2003.

7. Lamberte, Mario, Investments of OFWs in Rural Banks, Paper delivered at the ERCOF International Conference, Davao, Philippines, April 2002.

8. Josaias dela Cruz, OFW Savings and Investments in Microfinance presented at the ERCOF Conference, Silang, Cavite, Philippine, July 2003.

9. OFW Journalism Handbook, 2003, a Publication by the OFW Journalism Consortium.

10. Puri and Ritzema, Migrant Worker Remittances, Microfinance and the Formal Economy, Prospects and Issues, ILO, 1999.

11. Sixto K. Roxas, OFW Trust Fund for Development, a presentation at the ERCOF Conference on Programs to Harness Migrants Resources for the Development of Local Economies, July, 2003, IIRR, Silang, Cavite, Philippines.

12. Stalker, Peter. Proceedings on the NOVIB Experts Meeting on Migration, Globalisation and Development, March 2003, The Netherlands.

13. Peter Gammeltoft, Remittances and other financial flows to Developing Countries, CDR Working Paper 02.11.

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