Adam points to Ethan's musings on the dire need to move many small payments across borders. It's a good analysis, he gets it right.
Remittances has been huge business for a long time. However it didn't burst onto the international agenda until 9/11 when it was suggested that some of the money was moved using Hawala. Whether that was found to be true or not I never heard - certainly most of it was sent through the classical banking channels. Not that it made any difference; even the Congressional committee remarked that the amounts neeeded for 9/11 were too small easily trace.
No matter, suddenly everyone was talking about remittances. The immediate knee-jerk reaction was to shut down the Hawalas. Of course, this got a huge cheer from anti-immigrant interests, and Western Union, who provides the same service at about 5 times the cost.
Unfortunately, shutting them down was never going to work. Remittances is such a large part of the economy it has to be recognised. The effect is so large, it is the economy in some senses and places. (I recall Ecuador numbers its exports as oil, remittances, and fruit, in some or other order. Other countries do something similar, without the oil.) Africa Unchained reports:
According to a recent report (Migrations and Development) by the International Development Select Committee (UK), over $300 Billion was sent from developed to developing countries in 2003 by diasporas living in the developed countries. Global remittance, the report maintains is growing faster than official development assistance from the developed countries, also global remittance is the second largest source of external funding for developing countries, behind Foreign Direct Investment (FDI), and also accounts for as much as 27% of the GDP for some African countries.
But these economies and their remittances will always now be cursed by the need to give lip service to the anti-money-laundering (AML) people. Of course money laundering (ML) will go on through those channels, but whether it is more or less than through other channels, and whether it is likely to be more obvious than not is open to question. From what I can tell, ML would be hard to hide in those systems because of the very cautious but "informal" security systems in place, and no operator wants the attention any more.
What is not open to question is that the attention of AML will dramatically increase the costs of remittances. Consider adding a 2% burden to the cost of remittances, which is easy given the cost disparity between the cheaper forms and Western Union. If remittances happens to generate half of the cash of a country, then the AML people have just added a whole percentage point of drag to the economy of an entire underdeveloped nation.
Gee, thanks guys! And there is another insidious development going on here, which is also mentioned above:
Hundreds of creative efforts are underway across the developing world to solve these problems with remittance. To address safety issues, MoneyGram is offering delivery services of money transfers in the Phillipines, bringing money to your door instead of forcing you to come and collect your funds from an office in town. Alternatively, if your recipient has an ATM card, they will transfer the deposit to her account. A new remittance strategy - goods and service remittance - addresses the safety, cost and misuse issues simultaneously. Instead of sending money home, make a purchase from a store or website in the US or Europe, and powdered milk, cans of corned beef or a live goat is delivered to your relatives. Manuel Orozco, an economist with the IADB, estimates that as much as 10% of all remittance happens via goods and services.
Mama Mike’s - a pioneer in goods remittance - offers online shoppers the ability to buy supermarket vouchers and mobile phone airtime for relatives in Kenya and Uganda, as well as more conventional gifts like flowers and cards. SuperPlus, Jamaica’s largest supermarket chain, goes even further, allowing online shoppers to fill a shopping card for their relatives and arrange for them to pick up the order in one of the SuperPlus stores around the country. SuperPlus is a partner with both Western Union and MoneyGram and has been promoting its supermarket remittance service through Western Union and MoneyGram stores in New York City, home to a large Jamaican diaspora. Goods remittance services generally don’t charge a fee, making their profit off goods sales instead.
Spot it? The ones who benefit most from the push for AML are the large transnational corporations that come in and provide a "creative effort." They get a free pass, and help from authorities because they say all the right words. Today's pop quiz: is Western Union is more likely to stop ML than informal methods of remittances? Would Western Union be able to close down any troublesome competitor with the right noises?
Depending on your answers, it's either the noble fight, or just another traumatic security agenda being captured and turned into a _barrier to entry_ to squeeze the small guys out of a very lucrative business.Posted by iang at January 17, 2006 05:55 AM | TrackBack