ECONOMY-PHILIPPINES: Migrant Workers Use Remittances as Investment Tools

• by Prime Sarmiento (zambales)
• Thursday, July 09, 2009
• Inter Press Service

Detubio worked for twenty years as a seafarer, earning over U.S. $7,000 per month and was contented to provide his family with a comfortable life. But Detubio always wanted to go back home to be with his family. He also aspired to be self-employed, but a lack of capital was the biggest obstacle in the way of his entrepreneurial dream.

Detubio’s family decided to cut expenses and deposited a portion of remittances in a savings account to overcome that obstacle.

'It’s just a matter of self-control,' Detubio said. Detubio and his wife, a bank manager, first invested in the rice trading business. Detubio was then working as a seafarer, remitting money, while his wife managed the business on the side.

But the brisk competition in the business and high overheads forced the couple to shut shop. They stumbled into the LPG business, when a family friend, who’s a franchisee of PR Gaz Haus, one of the Philippines’ leading providers of LPG products, encouraged them to also apply for a franchise.

In 2005, Detubio moved back home and helped his wife in managing the franchise store, which turned out to be a money-spinning venture. They recovered the two million pesos ( 42,000 US dollars) start-up capital after only a year of operations, thanks to steady demand from households, backyard farms and small eateries. Detubio then used the profit to bankroll two new businesses: another PR Gaz Haus franchise and a poultry farm.

Detubio is just one of the growing number of middle income migrant workers who are not using remittances just for consumption but also as a means to invest in private business enterprises, remarkably improving their quality of life.

'[A] common perception is that OFW households spend remittances on consumption and therefore do not promote investment and future income,' according to a paper issued in March by Kelly Bird, economist at the Southeast Asian department of the Asian Development Bank (AsDB).

But Bird said 'the consumption bias' depends on the socio-economic status of the family. Lower income families spend a major part of their remittances on food, while the more well-off OFW households use it to finance the children’s education or put up a business.

'In poorer families, remittances are often used for consumption. But after basic consumption needs are met, remittances are also used to finance education, health, housing and small business investment,' said Dilip Ratha, a World Bank economist.

Data collated by the AsDB revealed that in 1985, 40 percent of the total OFW households set up new businesses. In 2006, that figure soared to nearly 55 percent.

'There is increasing evidence that over time, OFW households are spending a higher proportion of remittances on investments – in children’s education and small enterprises,' said Bird.

Philippines is one of the world’s biggest labor exporters and remittances, which hit over U.S. $16 billion in 2008. This source of income has been buffering the country’s economy for over three decades.

Remittance generated foreign exchange need to mop up the trade deficit and pay foreign debt payment. At the same time, it has kept most Filipino households from poverty. Bird noted that 900,000 Filipinos 'shifted from the low income group to the middle income group as a result of remittances.'

'Remittances have reduced the national headcount poverty rate (in the Philippines) by at least five percentage points,' he said.

Remittances are also cushioning the Philippine economy from the adverse impact of the global financial crisis. With or without the crisis, OFWs won’t stop remitting money to their families and this, analysts say, will continue to support the consumption-driven Philippine economy.

But there is evidence that remittances, more than a key driver of consumption, are now a source of investment. And this is why remittances aren’t likely to stop despite the global recession, Diwa Gunigundo, Philippine central bank deputy governor, said in an interview with reporters.

A recent survey done by the central bank revealed that households with OFWs tend to use the remittances not only to buy daily necessities but also to invest in small enterprises. They usually purchase real estate. This means that migrant workers will remit regularly as they need to meet monthly mortgage payments, Gunigundo said.

A recent AsDB survey of 500 OFW households in the Philippines revealed 23 percent of the remittances received in the first quarter of the year were used to support the family-owned business.

'Families receiving significant remittances are more likely to have at least one household member self-employed or head small enterprises, and this trend has increased over time, suggesting that remittances may also help families set up and sustain small businesses,' said Bird.

World Bank’s Ratha says that given the importance of remittances, not only in the Philippines, but also other labor exporting countries, there’s a need to set up an institution focused on research about remittances and development.

'I do feel that there is need for a one-stop shop that maps remittances and migration, examines ways to reduce remittance costs by introducing new technology, leverages on remittances for financial access of households, and for capital market access of institutions and/or countries,' he said.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

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