Skills-based remittances

Stay, go and come back.

Economic development is often thought of in two simple terms: trade and aid. If one doesn’t work, the other will. Yet increasingly, with prolonged poverty and weak-GDP growth performance in many developing countries, we find that perhaps neither works as well as it should.

(I’ve previously reviewed Dambisa Moyo’s work on half of this topic, and my Masters thesis might explain the rest.)

So why then do some countries seem to be emerging from sub-Saharan Africa’s economic slumber? In particular, the West African countries of Senegal, Ghana and Nigeria. Is it the consequences of decades of aid? Free trade? Or it because they have the right policy and institutional framework?

While it’s hard to disconnect any of the above metrics from eachother, I’d like to propose that growth in these, and other, countries is actually in large part linked to a concept of skill- and capital-repatriation that could be the “remittances” of the future.

My thoughts on this topic were shaped by my recent travels through Africa and the juxtaposition of strong private-sector development in the aforementioned countries versus most of their neighbours.

And while I don’t claim to have analysed the numbers on their economies, anecdotally I came to the half-conclusion that it’s not foreign expertise or small grants that are propelling these economies forward.

Rather, it’s the return of Senegalese, Ghanaian and Nigerian men and women from their adopted homes in Europe and North America.

With them, they bring ideas, expertise and cash.

It’s a new form of foreign remittances – the age old system that sees some developing countries act as exporters of labour and importers of foreign currency from those American or European based labourers.

And while remittances have grown to become a near $400 billion form of wealth transfer from rich to developing states, a new system of skills-based remittances sees much more than money return.

With it comes job experience that simply can’t be had in developing countries, no matter if this is as an investment banker on Fleet Street or a street sweeper on Wall Street.

My anecdotal experiences in Africa have convinced me that the return of the diaspora to their countries of origin acts a huge input of investment and skill, and acts a huge catalyst for the development of small and medium-sized enterprises. Be it clothing and music shops in Dakar, IT services firms in Accra, or banks and financial services in Lagos, it seems like much of the impetus is coming from this return of diaspora skills.

Now, let’s not forget, this isn’t all altruism and patriotism at work – rather, as my neighbour on a flight to Sierra Leone told me, it’s an opportunity to make a great deal of money while providing much needed services to a population in need.

While statistics on this phenomenon in Africa are hard to come by, one need only look at the statistics surrounding “returnees” to China and India to see how big of an impact this could have.

China – which sends over 100,00 students overseas every year to study – has seen the number of “sea turtles” returning jump from only around 6,000 per year in 1995  to over 42,000 in 2006. And while data shows that the total number of returnees is still far less than those who stay abroad (1.067 million vs .275 million), those who do come back, bring on average 5 years of work and academic experience with them and nearly half bring back foreign technology or expertise not currently available in China. The Hong Kong University of Science and Technology

In India, the story is much the same with the country’s burgeoning IT sector manned by an estimated 40,000 returnees from the US and Europe.  At GE India, over one-third of the company’s R&D staff are U.S. returnees. At IBM India, over half of the company’s PhD level researchers are returnees.

On the international level, migration and return is set to play a determining factor in country specific competitiveness for years to come. As Vivek Wadwha of the Harvard Law School  Labor and Worklife Program notes, this reverse brain drain will act to catalyse innovation outside our borders, mostly in the countries of origin of would-be immigrants, and thus represents a major lost opportunity for policy-makers and employers in the US (and Canada and Europe for that matter), and an equally large opportunity for policy-makers in the developing world.

Creating the right climate for investment and private-sector entrepreneurialism, combined with the pull of culture and home, might see more migrants head home in search of the opportunities they once sought overseas. Economics will dictate these decisions, but given the poor job Western countries have done in providing for economic opportunities for new immigrants, it wouldn’t surprise many if a tie in economics was broken by the comforts of home.

And if that’s the case, then the worlds developing countries are likely to benefit tremendously while the West loses out on a massive source of future innovation and growth.


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