Remittances – good news for government

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By Mike Wootton

Money sent to the Philippines by Filipinos working abroad is officially now running at around $22 billion a year, representing 10 percent of Philippine gross domestic product (GDP), and is forecast to increase. And this may be but a fraction of the total money earned abroad, which is brought back and spent in the Philippines as other money will be “imported” via informal means (carried in suitcases or not transmitted via the banking system). Whether or not this money should be counted into GDP at all rather than gross national product (which includes remittances sent from abroad) is a debatable issue, given that GDP is the value of domestic production, but let that pass for the moment.

The Philippines diaspora, the senders of all this money are about 10 to 12 million, and if we assume an average family size back at home of a conservative four people, then this $22 billion is supporting half the population. Consumption accounts for 75 percent of GDP and as little (other than food and housing) actually originates and/or is manufactured here, then much of the spending on consumption is on imports—which in goods are the purchases of choice anyway. So remittance money increases imports and if not invested and most of it is not, because on an individual basis there is not enough of it to invest other than perhaps in buying a small house or condo, detracts from the development of any new business and consequent job creation (on the assumptions that; business start-up loans are available which they are generally not, and if the market is taken up by imports, then there is less motivation for starting manufacturing in the Philippines).

Working overseas remitting the earnings is necessary to ensure the survival of those who are left behind (in a nation where 28 percent of the population are living below a ridiculously low poverty line of less than $1 a day). In particular, it contributes to obtaining services like health care and education, as well as covering the basic necessities of food and shelter. Thus, if it is supporting half the population, it relieves government of providing basic services such as housing, health care and education, and no urgency will be seen to provide these as long as the remittance money keeps rolling in. Remittances have also the added benefit of providing lots of foreign exchange.

If remittance money is saved and invested (in some form of properly organized scheme for example) in industrial development that will create jobs and manufacturing capability, thereby lessening the need for imports, it can be a marvelous contributor to making the Philippines a better place. To be able to use $22 billion a year toward industrialization, decent work and opportunity creation in the Philippines would be a substantial contribution from the private sector and without any necessity to include the banks.

Compared to the remittance flows, any likely foreign direct investment or overseas development aid contributions pale into insignificance, both areas contributing only 10 percent or less of the amounts of the remittances. Unfortunately though, it cannot work like that, and it cannot work like that because government does not do its job in providing basic necessities for the citizens, people have to do it themselves, because of the business environment new business start-ups are just too difficult and almost certain to fail, and not least there is a cultural propensity for succumbing to the urge to get the “sparkly” items so much advertised and so readily available in the plethora of shopping malls, and which are often more attractive ways to spend money than on life’s necessities—economy based on an ever increasing consumption of imports! The potential to use remittance money for real industrialized economic growth is further narrowed by the fact that so many of those who have left the Philippines to support their families by contributing to the economic growth of other nations, are the educated and experienced Filipinos whose skills and overseas earnings are needed if the Philippines is to develop its own industrial and manufacturing economy.

It is a trap a real “Catch 22.” The overseas Filipino workers (OFWs) cannot return to the Philippines, because there are not nearly enough decent jobs (another government failure) so to be here would put themselves and their families on the street, and without the ability to use the 10 percent of GDP for development investment, it is highly unlikely that there ever would be enough decent work to allow these people to contribute. The money earned abroad which subsidizes the government allows those who actually have access and use of government money to more freely use it (for whatever personally aggrandizing means they may desire) without having to bother about providing any necessities for the citizens.

Frankly, it is no wonder that the OFWs and diaspora are so revered by various Philippine presidents, they are excusing them from billions of dollars’ worth of public responsibility, including avoiding the tiresome and difficult necessity of having to try too hard to make jobs and an industrial base at home.

Many times, I have heard overseas Filipinos say, “I want to come back, to retire to the Philippines and perhaps even invest.” To come back to retire if they have the savings is clearly a nice thing to do. To invest, in terms of starting some form of business is not a good idea (and lots of overseas Filipinos are aware of this), but yes, buy a house or a new condo, use the electricity and the toll roads, go to the malls then we have added another consumer or two to the market, so those who control the Philippines business should be happy.

Mike can be contacted at mawootton@gmail.com

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