Repercussions of remittance economyThe advantages of remittance inflow into poor countries such as Nepal are too obvious to miss.
The rainfall during the monsoon this year was 10 percent lower than the annual average. The government routinely fails to procure sufficient chemical fertiliser for farmers in time. Insufficient rain is likely to reduce the rice output and adversely impact the cultivation of pulses, oil seeds and vegetables, as winter rains are often unpredictable.
The cycle of drought and floods in the Madhesh plains—the rice bowl and bread basket of the country—was bad enough. The impact of climate change has begun to worsen the situation as heat waves during the summer and foggy haze during the winter negatively affect agro-forestry, animal husbandry and fish farming.
For small landholders and marginal farmers, they need a lot of grit to maintain the tradition which once proclaimed that farming was the best occupation as it helped feed the world. An old saying in Maithili holds, "Uttam kheti, madhyam baan / Nikristha chakari, bheek nidan". The axiom declares agriculture to be the best occupation, commerce the tolerable second, and working for others the worst option as it forbids begging altogether.
The sanctity of tilling the land for salvation has lost its social and religious overtones. When livelihood is at stake, economic considerations triumphs over family traditions. It is much more tempting these days to sell the land, get in touch with a manpower agent and fly away to the cities of the Gulf Cooperation Council such as Dubai, Doha or Dammam. It's the money they send home from their meagre earnings as remittances that has kept the Nepali economy afloat during difficult times.
The rhetoric of creating employment opportunities in Nepal through industrial development is all very well, but it flies in the face of ground realities. The supply of energy has stabilised to a certain extent, but the availability of hydroelectricity is highly vulnerable to natural calamities. The per unit cost of transportation in a landlocked country with largely rugged terrain makes the import of raw materials and the export of finished products highly uncompetitive.
In addition to transportation bottlenecks and unpredictability of energy availability, there are human resource constraints that discourage productive investment in the industrial sector. Managerial talent is in short supply as opportunities in the development agencies and INGOs are more lucrative. Technical personnel prefer to work abroad due to higher prospects of career advancement in bigger markets. Skilled workers are hard to find and even more difficult to retain.
Perhaps the most frustrating element is the sense of entitlement among government officers, regulatory authorities and even unskilled workers that the jingoistic elites have nurtured over the years. While fly-by-night operators find the commercial environment extremely conducive for making a fast buck in cahoots with manipulative fixers, the condescending attitude of locals makes foreign investors, expatriate technocrats and skilled managers cringe as they feel unwanted and unwelcomed in a high-risk and low-return country.
The glamour of the tourism “industry” notwithstanding, its contribution to the GDP was a paltry 6.7 percent recently, and is unlikely to go above 10 percent in the near future. Remittance has remained one of the largest contributors to the national economy for years, and will probably remain so for quite a while. The World Bank estimates that remittances accounted for 22 percent of the GDP this year. Informal inflows are considered to be at least 50 percent higher than official figures. The economic size of remittances is too high not to have a significant impact on the political economy of the country.
The advantages of remittance inflow into poor countries such as Nepal are too obvious to miss. In the absence of easily exportable commodities or internationally competitive products, wage repatriation from abroad remains the primary source of earning foreign exchange. It has been asserted that "remittances to developing countries prove larger and more stable than other external financing, including foreign direct investment (FDI), official development aid (ODA), and private debt and portfolio equity". In fact, the contribution of remittance to the national economy is sometimes larger than FDI and ODA combined.
In addition to procuring convertible currency for vital imports such as food, medicine and petroleum products, and helping maintain the balance of payments, remittances play a vital role in reducing absolute poverty. When an earning member begins to send some of his savings back home, the family in the source country can afford to eat well, send its children to school, build better shelter, take care of the aged and the ill, and save some money to tide over emergencies.
The discernible change in the villages of Madhesh after the mid-1990s is attributable largely to the remittances from GCC countries. Children are better dressed, enrolment of girls in schools has gone up, and brick houses have begun to replace thatched huts. Soaps, shampoos and detergent powders in tiny sachets can be bought from corner shops.
It is said that plump pigs in narrow streets that feast on waste and stray dogs lazing around the pile of leftovers are the surest signs of new-found prosperity. The whirl of motorcycles, ringtones of Chinese smart phones, smell of fish being cooked on gas stoves and youngsters making TikTok videos complete the picture of localities that have benefited from remittance inflows. Then there are tipsy adults whiling away their time as they wait for the next tranche from money transfer agencies.
In areas that have been receiving money from abroad for over a decade or so, changes are even more perceptible. Apart from higher consumption, living conditions begin to improve with constant inflow of funds. Water supply and sanitary conditions get better, electric fans and heaters reduce the impact of temperature variation, clothes are cleaned more often, and children learn to do their homework.
The economy of Nepal endured the shocks of the Gorkha earthquakes and survived the long Covid-19 lockdowns largely on the basis of remittances. External donors, lenders and philanthropists of the Nepali diaspora were generous with words, but not very munificent in deeds.
While the benefits of remittances mostly go to households, their costs have to be borne by the whole society. Economists have argued that the remittance trap causes conspicuous consumption, fuels price rise, raises the cost of production, reduces competitiveness and inhibits growth. The demographic dividend is lost as the working age population finds it more attractive to migrate abroad. The median age of Nepali-born migrants in Australia is 27.9 years. Perhaps it's much lower for Nepali workers in West Asia and Malaysia.
Governance in the source countries suffer when recipients expect nothing from their government. The pressure to improve public education, health and transport disappears as remittance beneficiaries begin to rely upon private and for-profit providers of all such services. The ones left out of the loop suffer the most. Prof Paul Collier puts it most succinctly, "Migration hurts the homeland."
The most problematic aspect, however, appears to be the intangible remittance of culture, beliefs and values of the host countries in West Asia and Malaysia that tend to promote intolerance of diversity, acceptance of radical religiosity, a distaste for democracy and a silent rage against the regime at home among workers that toil in slave-like conditions. Remitters yearn for certainty at home, and are willing to back politicos with an authoritarian streak.