Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes
Showing posts with label foreign aid. Show all posts
Showing posts with label foreign aid. Show all posts

Wednesday, 28 May 2025

Something concrete for the trade vs aid debate:

 

A plane from Africa can fly Britain to its global future

Uganda does not need aid to prosper; it needs to trade with the United Kingdom. That will benefit both sides

President Yoweri Museveni speaks during a Reuters interview at the National Leadership Institute
Credit: ABUBAKER LUBOWA/REUTERS

Last week, we saw a glimpse of Britain’s present and future. First, a “reset” with the European Union, touted by London as a step to lower barriers and increase trade in similar food and fresh produce between neighbours. Second, a Ugandan plane flying direct to the UK for the first time in more than two decades, carrying a cargo of produce that Britain cannot grow. 

It is not for the leader of a country far away to judge the rights or wrongs of closer trade cooperation between Britain and Europe. But what is undeniable in 2025 is that the oft-quoted “first rule of trade” – that proximity matters – is a fiction. If it were true then the proportion of trade the UK conducts with the rest of the world would not have accelerated for the last 20 years, while in parallel trade with its continental neighbours declined.   

It is a fact that many nations around the world proudly possess older and deeper ties to Britain of shared language, culture, and trade. Many, like my own country Uganda, are members of the Commonwealth, and have sought to re-kindle brotherly relations since Brexit in 2020. 

The fruits of this opportunity are increasingly visible: trade deals have been signed with Australia, New Zealand, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and India. This shows just how many seek to recalibrate the old bonds that predate Britain’s time in the EU, and how regardless of any reset with your neighbours your country’s trade relations are now permanently global.

That’s why the landing of Uganda airlines flight UR110 at Gatwick last week represents such potential. There is simply no reason in today’s world why Britain should not seek to increase trade with every continent – and not least Africa when it contains 11 of the world’s twenty fastest-growing economies. 

In the UK – and her continental neighbours – green beans cannot be grown beyond the summer. Coffee beans cannot be grown at all. In Uganda, both – and more – can be harvested all year around. When much of what you and your neighbours grow is similar, and according to the same seasonal rotations, that makes them as much trading competitors as partners. Uganda, on the other hand, is complementary. 

But we are ahead of ourselves. There are many barriers to trade between Britain and Africa and they will not be lowered by the first planeload of coffee, chocolate, and chillis on flight UR110. Those will be lowered by trade agreements that reduce tariffs, by addressing non-tariff barriers to trade and, just as importantly, by challenging prejudices about Africa – prejudices Africans too must work hard to combat. 

In 2023 the UK launched the Developing Countries’ Trading Scheme, a post-Brexit trade policy that reduced – in many cases to zero – tariffs on a raft of products for 65 emerging market nations with more than half from Africa. 

This major statement of belief in free trade and reengagement with the world was welcome. Yet lowering a tariff on, for example fresh produce, does not automatically mean a single extra pea or mango will be imported. The most devastating barrier facing African farmers – indeed most worldwide – are the non-tariff barriers put in place in the name of food standards. 

Everyone wants safe and clean food, and who has not tasted the best when it is grown naturally, in a garden, smallholding, or allotment? Yet such produce would not be legally permitted for sale in a single British supermarket under a constellation of rules and regulations slated to both protect and seemingly at the same time to remove all taste. 

Extreme certification and regulatory barriers are destined to benefit huge commercial agribusinesses that can afford to meet them, while they wreck the chances of smaller producers through prohibitive costs from exporting to the UK. This is a system that empowers not people but multinationals.

There must be a solution between friendly nations that with sufficient imagination can land a happy medium. That same approach should be turned to address preconceptions about Africa and its expectations of relations with Britain. 

Too many in the West believe Africans want their charity, and their money. They are wrong on the first, but right on the second. We do not want your aid; we want your trade. We want the honesty of being trading partners, not the dependency of handouts. 

Help yourselves by helping us supply you with the food and goods you cannot produce. Sell to us the services and goods we cannot make. Manufacture and assemble with us and bring in technology and we give you the raw materials. This is what the future of trade looks like. Britain can make the first planeload of Ugandan produce in two decades not a footnote in its new global trade relations, but the reawakening of something older and more complementary than we have known for a long time. 


Yoweri Museveni is president of Uganda

Tuesday, 14 January 2025

Remittances - the great global redistributor:

 

The great global redistributor we never hear about: money sent or brought back by migrants

Migrants send or bring back over three times the amount of money provided by global foreign aid. Cutting transaction fees could make this support even more effective in reducing poverty.

Every year, Carlos Hernández Mejía, a 35-year-old research scientist in Amsterdam, sends 3,000 to 4,000 euros to help maintain his mother’s house in Mexico. During the pandemic, he also helped his brother, sending 300 euros a month to cover rent while he was studying.

Carlos is one of 200 million migrants who regularly send back money to support their families and communities. These cash transfers reach around 800 million people globally — more than the populations of the United States and the European Union combined.

Imagine a classroom of 30 students representing the world’s population; at least three would get money from remittances — one in ten people.

These payments have quietly become a major force in helping families pay school fees, make repairs to their homes, and cover medical bills.

The World Bank estimates that money sent back by migrants constitutes around two-thirds of what is called “remittances” in global statistics. The rest comes from border, seasonal, and other short-term jobs abroad or work with non-resident employers, such as embassies and international organizations.

In this article, we’ll ditch the jargon and refer to remittances as money sent back or brought back by migrants. “Sent back” refers to personal transfers, and “brought back” refers to the compensation of employees.

Migrants send and bring back much more money than the total global foreign aid

The amount of transfers sent or brought back by migrants adds up a massive amount. To see how much, let’s compare it to foreign aid.

Foreign aid is money transferred from one country to another, usually to support people in a lower-income country. It’s often seen as one of the largest efforts to redistribute wealth around the world.

However, as the chart below shows, the amount of money sent or brought back by migrants was more than three times larger than foreign aid in 2021. We don’t often hear about these flows, but their scale is far bigger.

A bar chart compares the amounts of money sent or brought back by migrants and foreign aid for the year 2021, presented in U.S. dollars. The bar for money sent or brought home by migrants stands at $781 billion, significantly taller than the bar for foreign aid, which measures $202 billion. An annotation indicates that worldwide, migrants send or bring back over three times more money than foreign aid provides. The data source is the World Bank, with a note stating that foreign aid refers to net official development assistance. The chart is attributed to "Our World in Data."

Most of this money flows from rich countries to poorer ones

So, the amount of money sent or brought back by migrants is larger than foreign aid. But, most foreign aid flows to countries in need, such as low-income and middle-income countries. Is the same thing true for money sent or brought back by migrants?

If migrants were only sending money from Denmark to the Netherlands or from Switzerland to Monaco, the effects on global inequality would be minimal. But that’s not what’s happening.

As the chart below illustrates, high-income countries send $680 billion but only receive $195 billion. In other words, people in these countries provide 87% of the funds while receiving just 25%. Economic resources from high-income countries are being redistributed abroad.

A flow diagram illustrating the financial remittances sent or brought back by migrants from high-income countries to middle-income countries in 2021. On the left, it highlights the total amounts sent by different income group countries: High-income countries at $703 billion, Upper-middle-income countries at $58 billion, Lower-middle-income countries at $33 billion, and Low-income countries at $9 billion. 

On the right side, it shows the amounts received by various income group countries: High-income countries receiving $195 billion, Upper-middle-income countries $232 billion, Lower-middle-income countries $340 billion, and Low-income countries $13 billion. 

The flows between the two sides are represented by colored bands, illustrating the movement of funds from senders to receivers. The diagram is sourced from the Global Knowledge Partnership on Migration and Development (KNOMAD) and is published by Our World in Data, licensed under Creative Commons BY.

The main beneficiaries are middle-income countries. Upper-middle-income countries send 7% but receive 30%, and lower-middle-income countries send only 4% but receive 44%.

This also means that very little money reaches the poorest countries, where people need it the most. Low-income countries receive just 1.7% of all money sent or brought back by migrants, despite being home to 9% of the global population.

Small sums from rich countries go a long way in poorer nations

Money sent or brought back by migrants has a big impact on recipient nations.

According to the UN, migrant workers send back about 15% of their earnings on average. But even a little money from rich countries can make a big difference in poorer ones. For example, 15% of the average annual income in the United States is nearly twice the average annual income in Colombia.

The chart below illustrates that many countries receive remittances in amounts that are large relative to their gross domestic product (GDP). In over thirty countries, remittances account for more than 10% of the value of their entire economies.

Money sent or brought back by migrants as a share of GDP, 2022

Money sent or brought back by migrants refers to remittances a country has received in this year.

No data0%1%2%5%10%20%

Consider Central American countries, where many people have emigrated to high-income countries like the United States. Money sent or brought back by migrants accounts for up to 20% to 30% of GDP in Nicaragua, El Salvador, and Honduras.

How money sent back by migrants improves living conditions around the world

What happens when these funds reach families in poorer countries?

In low-income and lower-middle-income countries, an extra $100 from money sent or brought back by migrants can be the difference between a child going hungry and a child getting enough to eat. Research shows that money sent back by migrants reduces child malnutrition, helping children grow healthier and stronger.

It also covers healthcare where formal insurance systems fall short. Families can afford doctor visits, buy medicine, or pay for treatments that would otherwise be out of reach. Beyond providing care, it also helps to prevent child deaths by improving access to better sanitation. It functions as a private safety net from families rather than governments.

With money sent from abroad, children can also stay in school longer. Thanks to Carlos, his brother in Mexico could afford rent and finish university. Data from Ghana shows that families receiving money from relatives abroad enroll their children in school at higher rates, from primary school to secondary education.

The more money lost to fees, the less families benefit from what migrants send back

There’s a big problem for people who move to new countries and want to help their families. When they send money, a significant share is lost to banks and money-transfer companies before their families receive it. These fees, known as transaction costs, are one of the biggest hurdles stopping migrants from giving their families more support.

Transaction costs reduce the money received in two ways. First, they directly bite into the amount of money migrants send. But they also have an indirect impact: research from the IMF shows that when fees are high, migrants often send less overall, knowing that a bigger chunk of what they send won’t make it to their families.

If governments want to make it easier for migrants to help their families, lowering these transaction costs is key. The chart below shows that fees are moving in the right direction. The median fee for sending money has dropped from 8% in 2011 to 6% in 2020.

A line graph titled "Sending money to the Global South has become cheaper" illustrates the average fees for remittances sent by migrants to various regions from 2011 to 2020. The graph features three colored lines representing Africa (blue), South America (purple), and Asia (orange). 

The y-axis represents the average fee percentage, ranging from 2% to 8%, with horizontal dotted lines indicating 3%, 4%, 6%, and 8% fee levels. The x-axis shows the years from 2011 to 2020. 

The overall trend shows a decline in sending costs over the past decade, yet all regions still exceed the target of a 3% fee set by the United Nations for 2030. The data source is noted as the World Bank (2024).

The United Nations wants to bring this global average below 3%, with no remittance route exceeding 5% by 2030, as part of its Sustainable Development Goals.

But despite recent progress, we are still far from this target. For example, sending $100 from Uganda to the Democratic Republic of Congo can cost as much as $10 — more than double the UN’s recommended maximum. The global average of 6% is still twice as high as the target.

Governments can make it cheaper for migrants to send money back in at least three ways. First, they can require money transfer companies to clearly show all fees and exchange rates so migrants aren’t left guessing and can pick the cheapest option. This added transparency can also help drive prices down as companies compete to offer better deals.

Second, they can reduce the costs of money sent back by migrants by creating shared payment networks that connect banking systems across countries. For instance, when the US and Mexico linked their central banks’ payment systems, it slashed remittance fees to $0.67 per transaction with an exchange rate spread of only 0.21%. Expanding this model to more countries could save migrants even more.

Finally, governments could launch official remittance cost comparison websites, as Australia and New Zealand have done for sending money to the Pacific Islands.

The IMF estimates that meeting the UN’s remittance cost goals could lead to an extra $32 billion sent back each year. This would allow more families to pay for school, healthcare, and basic needs in places where every dollar counts.

Migration doesn’t only result in redistribution through money sent or brought back by migrants. Since the percentage of migrants in high-income countries is growing faster than in other regions, the direct impact of income increases can also be significant. For example, the bottom 5% of earners in the Netherlands earn more than the top 5% in Morocco.

In the meantime, Carlos Hernández Mejía, like millions of other migrants, is making a big difference for his family — one transfer at a time.

Breaking down remittances

Remittances include both personal transfers (money sent back by migrants) and employee compensation (money brought back). Since these are different things, it would be better to analyze each category separately to better understand if increases are driven by transfers or employment.

Unfortunately, the World Bank does not currently provide that level of detail in the data that it publishes. Access to this breakdown would greatly enhance our understanding of the actual trends and their impacts.