EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELFARE IN NIGERIA

0
5

CHAPTER ONE

INTRODUCTION

1.1       Background Information

Remittances have been defined as the proportion of migrants’ earnings sent from their destination of employment to their origin or communities (Samal, 2006). As financial flows that do not require a quid pro quo in economic value, they can be termed transfer payment in Balance of Payment Accounting. Remittances are considered as compensation (brain gain) for the loss of human capital (brain drain) by a net labour exporting country (Ratha & Xu, 2006).  Relevant classification of remittances include: monetary versus non-monetary remittances; domestic versus international remittances, and inward versus outward remittances. The principal concern in this research is monetary- international-inward remittances to Nigeria. Domestic remittances will also be important elements of analyses.

Remittances are normal concomitant to migration which has been an integral part of human history.  For example, Italy enacted a law to protect her remittance inflows in 1901 and remittances were also vital in her post-1945 development (Miluka, Carletto, Davis & Zezza, 2007). In Spain,  rural banks and credit unions were formed after the second World War to receive much-needed foreign currency sent home by migrants working in the US and South America (Miluka et al, 2007). In recent history, declining wages, increasing unemployment and underemployment motivated further migrations of skilled and unskilled labour from the agrarian sector of the developing countries to the advanced world.

Globalization, accentuated by economic integration, collapse of many international trade barriers with a somewhat relapse of tight immigration laws made migration even more pronounced with a commensurate growth in remittances. Given their fast growths in the last 2 decades, remittances are now recognised as the foremost benefits of migration. They have also attracted attention in empirical studies with some concentration on their determinants and developmental impacts (Adenutsi, 2010). Also, a few multilateral, bilateral and governmental initiatives on remittances are emerging. Some of them are discussed in chapter 2.

 Developing countries as a whole have consistently been the largest recipient of international remittances in the world. Formal remittance flows to this region is twice as large as Official Development Assistance (ODA) and nearly two-third of Foreign Direct Investment (FDI).  Between 1995 and 2005 the total amount of official migrant remittances received by developing countries increased by more than 300% (Adenutsi, 2010). Remittances to developing economies reach US$338 billion in 2008, higher than its estimated value of US$328 billion (World Bank, 2009). The actual total amount of migrant remittances received by developing countries is much higher. It is probably 2.5 times the amount of official flows since a significant amount of these transfers is likely sent through the informal channels (World Bank, n.d. as cited in Mutume, 2005).

Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable with the US$20 million received 20 years earlier (1977) (IFAD, 2006).  The country received 65 per cent of remittances to Sub Saharan Africa in 2000 (World Bank, 2002 in: Orozco, 2005), with most migrants sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings) per year (Ruiz-Arren, 2006). Annual estimates exceeded $1.3 billion, ranking second only to oil exports as a source of foreign exchange earnings for the country in 1997 (Mutume, 2005). Nigeria was the sixth highest destination of remittances from citizens of developing nations in the diaspora (Mobile Money Africa, 2009). The nation received $3.3billion in remittances which accounted for 3.4 per cent of the GDP and seven times the value of ODA to the country in 2005 (IFAD, 2006). Nigeria ranked third largest recipient in Africa in 2006, receiving US$ 5.397 billion (36 percent of total remittances to the continent) (Ruiz & Vargas-Saliva, 2009).

Approximately 55 percent of total remittance flows to Nigeria come from the United States and 10 percent from the United Kingdom. Significant inflows also arise from Germany, Greece, Italy, Netherlands, Spain, South Africa and Ghana (Hernandez-Coss & Bun, 2007). The relative participation of Money Transfer Operators (MTOs) in the Nigerian remittance market include: Western Union (47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD, 2009). Eighty one percent of formal remittances coming into Nigeria are transferred through banks (IFAD, 2009). This creates incentive for savings by the unbanked remittance recipients. Bank bound remittances are also beneficial to the recipient households in terms of creditworthiness. Moreover, it places capital at investors’ disposal thereby contributing to national development.