Remittances as development tools in the Eritrean economy.
Ghebrekidan, Alem Abraha.
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Migrant workers in the developed countries remit part of their earnings to their families, relatives, and friends left behind in their old communities in the less developed countries. Remittances, as financial resources whether delivered in cash or in kind, have been playing great roles in the development of the economies of many developing countries. Remittances are now taking the lead after foreign direct investment in most aid recipient countries. Remittances are believed to remain a stable source of foreign exchange (Ratha 2003:163). They have great impact on the society at large and on the living standards of most remittance recipient households. Remittances can be classified as private development assistance because they are sent from individual migrants. At the same time, they are family welfare systems or safety nets that are delivered directly to the beneficiaries. Why do migrants remit? There are different theories of remittances that attempt to explain the act of remitting. Such theories range from an altruistic behaviour, which according to some studies about 75 percent of remitters claim to be motivated by enlightened-self interest, implicit family loan agreement and implicit co-insurance. The macro-economic determinants and the social networks also play a part in influencing the flow in volumes and frequencies of these moneys. Eritrea, as a country that has come out of protracted and devastating thirty years of war, started its development from meagre resources. In fact according to Randall (1995), in 1991 - the year Eritrea got its independence - 85 percent of its people were living on foreign aid whether in the form of remittances or food aid. During the armed struggle, the role of the Diaspora Eritreans was significant not only as financial support but also because they acted as spokespersons for the little-known struggle for independence. It was therefore imperative for Eritrea to rely heavily on its Diaspora population for their financial, technical and other material resources to rehabilitate its devastated economy. To regain sovereignty means a lot to Eritreans as a whole and to the Diaspora Eritreans in particular. After independence, hundreds of thousands of the Eritrean Diaspora flew to their country, met their families and visited different historical places. According to the ministry of Tourism of the State of Eritrea, more than 70,000 Diaspora Eritreans visit the country annually, which means a sustainable level of tourism development can be achieved. The Diaspora also initiated different projects. The study has come to realise that indeed there are different projects that are sponsored by the Eritrean Diaspora in concern of their immediate families, communities and investments for their potential profits. Although it is difficult to put it in terms of figures or percentiles, some estimates put the annual remittances received by Eritreans to be between 200 - 300 million US dollars. Remittances, whether consumed or invested, are estimated to contribute enormously to the Eritrean economy, which roughly estimated is 19-37 percent of GDP. As in the case of Mexico, remittances' trickling down effect is 3:1 (Adelman and Taylor 1990 as cited in Ratha, 2003). Likewise, the developmental effect of remittances in the Eritrean economy is also estimated no less, if not more. Furthermore, the Government of the State of Eritrea implemented different policy measures to ease the flow of remittances and to guide the individual remitter in the use of these financial resources in the domestic economy. Different investment opportunities such as housing projects, sale of shares and stocks of government owned enterprises and treasury bonds are to mention but a few. Similarly, the government, to augment the Martyrs' Trust Fund and to increase the tax base of the economy, introduced directives plus nominal tax rates to the Diaspora Eritreans. Institutionalising Diaspora Eritreans and securitization of the future-flow of remittances also helped the government to get access to international markets, to avoid credit rationing in the face of deteriorating sovereign risks. The dissertation attempts to capture the role of remittances as development tools in the Eritrean economy. After introducing the geopolitical and economic background history of the country in chapter one, in chapter two attempts are made to cover extensively the definitions, uses and drawbacks of remittances. In chapter the different theories or determinants of remittances and the transfer channels and their associated problems are described. In chapter four endeavours are made to assess the different policy measures applied by labour exporting countries to influence the flow of remittances and their uses. For comparison of these policies, three countries experiences are presented. Finally in chapter five the paper tries to draw conclusions and advance some recommendations.