Headed home: Remittances help keep the economy on an even keel

The Philippines’ wealth of remittances from overseas Filipino workers (OFWs) allows for a steady inflow of cash ($20bn in 2011) and keeps local unemployment down. This is facilitated by a number of factors, including the deliberate choice of English as the medium of education and the government’s promotion and regulation of migration flows. However, there are concerns that the existence of such a “safety valve” merely covers up the underdevelopment of the Philippine economy and blunts the drive for reform. The government’s challenge, therefore, will be to transform remittances from a consumption-stabiliser into a form of investment in the nation’s productivity.

NUMBERS: Around 10m Filipinos live overseas, but those OFWs registered with the government represent only a small fraction, 1.47m in 2010. 4.42m are estimated to have permanently emigrated – mostly to the US, Canada, or Australia – while the rest are undocumented or irregular migrant workers. In total, the overseas contingent makes up over 10% of the population, and their remittances amount to approximately 10% of GDP. But the effect of this temporary migration is larger – since OFWs come disproportionately from the country’s lower and lower-middle classes, remittances help mitigate unemployment and help pay for food and rent among families of OFWs. This would explain why consumption growth held steady at 2-4% even during the Asian financial crisis, when consumption in its neighbours plummeted over 5%.

WORKER TYPES: Filipinos work in many countries overseas, but primarily in the Middle East, which accounted for over 60% of newly deployed land-based workers in 2010. Almost half work in the service sector, while another 35% are production workers. The skill intensity has actually declined since 2004, with the share of professional, medical, or technical workers dropping from 33% to 12%. In addition to being disconnected from their families during long multi-year deployments, Filipino migrant workers can also face issues like non-payment of wages and physical abuse. A majority of temporary workers are not officially registered as OFWs, often being hired through shady recruitment agencies or illegally working on tourist visas. This illegal status can make them beholden to their employers or recruiters, and many Filipinos arrested in the Middle East languish in jails even after their sentence is complete, due to a lack of rights.

The Philippines maintains a number of government agencies to promote and regulate the OFW trade, cracking down on unscrupulous recruiters and banning deployment to states with unsavoury labour practices.

In November 2011, for example, the Philippines declared 41 countries off-limits to OFWs, although the policy did not affect countries with large stocks of Filipinos at present. Moreover, some have concerns the ban will just push workers to go to these countries illegally.

RISKS: The dependence upon OFWs to provide revenue and mitigate poverty leaves the Philippines open to external shocks over which the government has little control. For example, disruption due to the Arab uprisings that began in 2011 has affected some 10% of OFWs, according to the Philippines Overseas Employment Administration. Moreover, campaigns to increase the employment of local workers could result in sudden joblessness for Filipinos. The 2011 “Saudiisation” law in Saudi Arabia, which mandates 10% local participation in the labour force of construction companies and 70% of financial companies, could endanger the $1.5bn in annual remittance flows from that country alone. The government has set aside P50m ($1.14m) to retrain and find jobs for returning migrants, but migrant rights groups have accused it still of being “in denial” over the impact of programs like Saudiisation.

One mechanism for overcoming the competitive disadvantages of remittances is to turn these inflows into a sort of investment. The Philippines’ OFW Reintegration Programme, which provides loans out of a P2bn ($45.4m) fund to returning OFWs, attempts to put the skills and capital accumulated by overseas workers to use in growing and developing the domestic economy.