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Are Remittances Really Remiss?

Remittances in Somalia

By Otito Greg-Obi

It is a popular opinion in the international development community that remittances – money transferred by a foreign worker back to someone in his or her home country – can have a negative effect on economic growth because recipients tend to spend cash flows on day-to-day subsistence. However, research shows that the opposite is true. A study on the effect of remittances on growth in Africa reveals that remittances seem to have an overall positive effect on Gross Domestic Product (GDP). When compared to foreign aid and Foreign Direct Investment (FDI), a 10 percent increase in remittances leads to a 0.3 percent increase in the GDP per capita income.

The Migration Policy Institute (MDI) points out that remittances are less volatile than international aid and FDI. For example, when the global economic crisis of 2009 hit, remittances in developing countries declined by only 5.27 percent whereas FDI declined by 32.94 percent. MPI also asserts that remittances allow for investment in human capital. For example, research shows that children in remittance households in Sri Lanka and Mexico have higher birthweights and lower rates of infant mortality. In Burkina Faso, Ghana, Uganda, Kenya, Senegal, and Nigeria, households that receive remittances are more likely to have a higher number of individuals with a secondary education. But, remittances are not just about human capital. In the Philippines and Mexico, there is a positive correlation between remittances and high levels of small business investment, as well as high levels of self-employment.

Remittances are a pressing issue in light of the current crisis in Somalia. Somalia boasts a population of 10.4 million people with forty percent of the population relying on remittances to meet basic needs. The country’s current GDP stands at around $2.37 billion. According to Oxfam, Somalia gets $1.3 billion dollars from its diaspora population each year, amounting to 56.5 percent of Somalia’s GDP. Somalia has no formal banking system. Instead, citizens depend upon Hawala, an informal currency transfer system run by money brokers. Increasingly strict money laundering policies threaten to topple the Hawala system and make life more difficult for many Somali citizens. These stricter laws result from a recent global effort to combat the risk of funding terrorism and the drug trade.

The anti-money laundering system is clearly connected to the remittance crisis in Somalia. The question is whether or not the system itself needs to be overhauled to solve the crisis. I had the opportunity to attend a talk given by Peter Reuter at the Center for Global Development. Reuter asserts that meaningful comprehensive reform is necessary and can begin by adopting a “do no harm” model.

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

He suggests conducting research-based cost benefit analyses so that countries can assess the extent to which avoiding risks is cost effective. If findings suggest that costs outweigh benefits, de-risking could be a viable option. He also suggests the controversial Tobin Tax as a possible method for dissuading money speculators.

I cannot say for sure if and how the anti-money laundering system should be reformed. However, I do have recommendations for the remittance crisis in Somalia itself.

In the short term:

  • Promote an increase in transparency between foreign banks, Somali money transfer operators, and citizens.
    • There needs to be a system in place that maintains a sense of trust between banks and citizens who are just trying to help their families survive.
  • Shift perspective on the issue of national security in Somalia.
    • Countries should strive to view remittances as a security stabilizer rather than a destabilizer. It is entirely possible for the sudden removal of remittances to incentivize citizens to join terrorist groups as an alternate source of goods/income.

In the long term:

  • Rebuild a formal banking system in Somalia that can slowly replace Hawala.
    • Bearing in mind the political instability of Somalia, is it necessary to gradually create a more formal economic landscape that offers an alternative to the Hawala money transfer system.
  •  Promote economic growth through capital other than remittances.
    •  Somalia should seek forms of alternative foreign capital (such as FDI) in order to create a larger role for diverse foreign capital for the sake of sustainable growth.

It is imperative that we continue to actively seek solutions to the remittance crisis in Somalia. Almost half of Somalia’s population will be negatively impacted by it. Two major preconditions for economic development are resources and stability. If remittances are protected, they can help to provide these preconditions and in turn contribute to the economic growth of Somalia as a country.

Otito Greg-Obi is a Knowledge Management Intern at CIPE. She is a rising junior at the University of Pennsylvania. 

The New Middle East: An Uncertain Future

Map of Middle East Region

By Bahaa Eddin Al Dahoudi, CIPE-Atlas Corps Think Tank LINKS Fellow

What future awaits the Middle East? This question remains pivotal following the outbreak of the Arab revolutions four years ago. It keeps popping up as regional developments arise, especially with the decline of democracy and presence of revolutionary forces in many Arab countries. The region’s resort to military tools is increasing due to the rise of terrorism, violence, and political polarization, a decline of charismatic leaders, and a lack of support for institutional structures and democratic transitions. In a Middle East where “there is no winner,” two vital questions emerge: Is the Arab revolution the reason behind the chaos and collapses? And, what are the future scenarios for this inflamed region?

I would argue that the Arab revolution is not the reason behind the current chaos. Knowing the history of revolutions, it can be understood that the development of a revolution is subject to consecutive waves of ups and downs. Resistance from old patterns against new revolutionary movements seeking a change are to be expected. In other words, what happened in the Arab world was historic but also unavoidable. Regimes that refused to change and reform – and instead accepted the equation of corruption and the status quo— had to fall one day. If it hadn’t happened in 2011, it would have happened another time. Thus, it is not beneficial to simply look back at the past and remember the good old days. Instead, one must look to the future and start preparing for what will come next. Thus, the real question we must ask is: What future awaits us in the Middle East?

What future awaits the Middle East? It is a region where Syria has collapsed, Iraq and Yemen are divided, Libya is shattered, and Egypt and the Gulf countries face huge security, economic, and political challenges. What future awaits countries where oil is the main determinant of the principles and rules of political games? All while international statistics say the region is witnessing explosions in population, rising unemployment rates, and declining quality of health and education services.

Are we about to witness an Islamic Middle East ruled under a Caliphate model? Will there be a democratic Middle East where people will again revolt against dictatorship in hope of creating a change? Or will the Middle East become a sectarian region filled with disputes, conflicts, and divided small states?

There are many outstanding questions and no one can definitively predict the outcomes. Undoubtedly, the years to come will carry more ambiguity in the political, socioeconomic, and cultural spheres in that region. In the meantime, we can continue to support freedom of speech of the people with the hope that the ultimate outcomes reflect the choices of the people of this region.

CIPE-Atlas Corps Think Tank LINKS Fellowship brings talented young professionals with strong research backgrounds to shadow researchers and experts at leading U.S. think tanks for six months. Bahaa Eddin Al Dahoudi is serving at Project on Middle East Democracy (POMED).

Working Together for the Future of Serbia’s Youth

serbian-youth

 By Milos Djuricanin, Program Manager at Serbian Association of Managers. Duracanin was a 2014 ChamberLINKS participant.

“It is clear that youth unemployment is one of the biggest problems of our society. If we want to successfully solve the problem of unemployment, we have to listen more to the voice of the economy and private sector. This is the absolute priority of the Government of Serbia. That’s why we initiated conversations with businessmen, in order to get first-hand information on their personnel needs and to create a common set of measures which will enable increase of youth employment”– Vanja Udovicic, Minister of Youth and Sports.

The status and position of young people in the labor market in Serbia falls into the category of challenges with no quick fix. Year after year, we are faced with statistics that continue to confirm that every second, a young person is left without a job. According to data presented at the National Youth Strategy for 2015-2025, youth unemployment in August 2014 in the Republic of Serbia is 41.7 percent for people aged 15-24, and 33.27 percent for people aged 15-30 years. Young people are inactive in the labor market: last year the inactivity rate of young people aged 15-30 years was over 50 percent and in 2013, it was noted that 20 percent of young people ages 15-24 belonged to the category of young people NEET (not employed, in education or training).

One of the key issues affecting the high youth unemployment is a mismatch between the skills that young people acquire through formal education, and the knowledge and skills that employers expect them to have. According to research conducted by the Union of Employers of Serbia, young people throughout the formal education system receive and adopt only theoretical knowledge and only 4.12 percent of young people are considered to possess the knowledge and skills for real business. Eighty-six percent of young people reported that they felt they did not possess any practical knowledge.

Among the barriers for business development in Serbia, the lack of adequate staff is increasingly climbing on the list: from an 8th place ranking in 2006 to third place ranking in 2013. This is a clear indication of how difficult it is to find high quality staff.

Given this information, the Serbian Association of Managers (SAM) with the support of the Center for International Private Enterprise (CIPE) organized an event titled “Support for the youth – future for the country,” during which a Memorandum of Cooperation was signed between the Ministry of Youth and Sport and SAM aiming to increase opportunities for top university students in the country to intern for SAM’s member companies.

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Press Freedom Still on the Decline

freedom-of-press2015

By Dahye Kim

On May 3, the United Nations General Assembly honors the fundamental principles of press freedom with World Press Freedom Day. On this day Freedom House also released Freedom of the Press 2015, the latest edition of its annual report published since 1980 to evaluate press freedom around the world.

Unfortunately, the dominant global trend in 2014 was negative. Global average score of press freedom declined to the lowest point in more than 10 years, with the largest one-year drop in a decade. There were significant declines in press freedom in 18 countries (Greece, Bahrain, Mali, Hong Kong, Azerbaijan, etc.), while just eight had significant gains (Tunisia, Myanmar, Libya, etc.)

Of 199 countries and territories, 32 percent were rated “Free”, 36 percent were rated “Partly Free”, and 32 percent were rated “Not Free.” This marks a shift toward the Partly Free category compared with the previous year.

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Maximum Wage in Egypt: Who Pays the Bill?

cbe-iimage

Photo: Muhammad Mansour

Hiba Safi is a CIPE-Atlas Corps Think Tank LINKS Fellow at the Tahrir Institute for Middle East Policy.

This post originally appeared on the Tahrir Institute for Middle East Policy blog

Over the course of the past several months, a revolt has taken place in Egypt’s banking sector. Seeking better opportunities and higher salaries in private sector banking jobs, hundreds of banking officials have resigned in protest since July 2014 legislation placed a cap on salaries for employees in Egypt’s public sector. While most public servants had little cause for concern, the law also applies to those working in state-owned companies. Suddenly executives at Egypt’s many state-owned banks would earn a maximum monthly wage of 42,000 Egyptian pounds (roughly US$6,000)—a mere fraction of their earning potential.

Former Minister of Finance Samir Radwan has spoken out against the implementation of a maximum wage, stressing that such an approach deprives public servants of their rights and does not meet demands for social justice. On February 17, a Cairo administrative court sided with workers from the Housing and Development Bank and the Export Development Bank of Egypt, ruling the maximum wage law to be unconstitutional. Tasked with fulfilling revolutionary calls for social justice and repairing an Egyptian economy on the ropes since the January 2011 uprising, President Abdel-Fattah El Sisi’s decision to cap a maximum wage at “no more than the president earns” aims to promote equality and social justice, halt the growth of income inequality, and bolster the middle class. But the actual impact of a maximum wage merits more consideration: Should there be a maximum wage in Egypt? Would the economy really be better off after capping earnings, particularly given the landscape of public and private ownership of many key sectors in the Egyptian economy?

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7th All-Pakistan Secretary Generals’ Conference 2015

pak-sg-conf

By Huzaifa Shabbir Hussain and Emad Sohail

“I am always proud to be a part of the Secretary Generals Conferences that have created tremendous impact in the working and improving the efficiency of the participating Chambers and Associations in Pakistan. In every conference we learn new and innovative ideas and exchange experiences with each other that provide us the opportunity to implement best practices in our respective organizations. In fact, these conferences through the rich experience and guidance of mentors like “Hammad Siddique” act as “Change Agent” that develop “out of the box thinking” to think creatively for efficient working.” – Majid Shabbir, Secretary General, Islamabad Chamber of Commerce & Industry

 “The role of trade associations, chambers of commerce, large corporations and the business groups in the economic development had become an important area of research.”  Shahid Khalil Secretary General Lahore Chamber of Commerce & Industry

“I feel very lucky that I got an opportunity to become part of this group, this event provides us guidance as an institution that help us in resolving all matters regarding our business association.”  Khurshid Anwar, The Vehari Chamber of Commerce & Industry.

The 7th Annual Secretary Generals conference was held on April 13-14 this year and was attended by 22 participants who gathered in Lahore from various parts on the country. The two-day event is considered a flagship event because of its strategic importance in creating a network and platform of private sector leaders who learn from each other and discuss new ideas and visions for the future.

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Libya or Tunisia: Who Needs the Other More?

March2015 Hiba

Hiba Safi is a CIPE-Atlas Corps Think Tank LINKS Fellow at the Tahrir Institute for Middle East Policy

Diplomatic Ties

The Libyan conflict is not only causing tens of thousands of deaths, destroying a society, and wiping out a state. It also is spilling over into neighboring Tunisia, destabilizing its internal equilibrium, redefining cross-border interactions, and affecting all neighboring countries in the Maghreb.

Since the uprising against President Muammar Qaddafi in March 2011, Tunisia has seen a vast influx of Libyan refugees. Cars, decrepit vans, and trucks packed with families sitting among bundles of belongings, suitcases, and mattresses stream into Ras Jedir and Dhehiba – official border crossings in southern Tunisia.

According to the former Tunisian Minister of Commerce, the country hosts around 1 million Libyans—equal to nearly 10 percent of the Tunisian population. Libya’s crisis and the ongoing entry of Libyan refugees into the country has resulted in unprecedented social, economic, and security challenges to Tunisia. Despite these difficulties, Tunisia has thus far maintained an open border policy toward Libyans and Libya’s Egyptians seeking respite from the violence in Libya—a decision that’s been praised by UN officials and Western diplomats.

No effective regulatory framework defines the relationship between the two countries, “They don’t need [a] visa to enter Tunisia nor any particular authorization to reside [in Tunisia],”stated Tunisian Interior Ministry spokesman Mohamed Ali Aroui.

Tunisia bears the brunt of the economic and social spillovers of the Libyan civil war. The 43-mile border (Ras Jedir in Libya and Ben Guerdane in Tunisia) has become a smuggling route for goods, oil, and arms, but also for anti-regime armed groups and terrorists. Moreover, the conflict next door has exacerbated inter-communal conflicts raging within Tunisia domestically.

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