A new study on the dynamics of remittances to Egypt finds that too little of the wealth is invested, while migration is male-dominated

The international organisation for migration (IOM) conducted a study on the dynamics of its remittances and how such wealth is invested. But does Egypt really care?

A study on Remittances and Investment Opportunities for Egyptian Migrants is a comprehensive report issued in Cairo. The IOM, in cooperation with the Egyptian Ministry of Manpower and Migration, the Centre for Migration and Refugee Studies at the American University in Cairo, and Italian Cooperation for Development, all participated in this valuable piece of research.

The importance of the study lies in the fact that Egypt is mentioned in most literature on the economics of remittances as an example of a significant exporter of labour and recipient of cash inflows.

While the global financial crisis resulted in a yearly negative growth of remittances flows of ten percent, Egypt ranked as the seventh largest receiving country in the world at the beginning of 2009, with an estimated remittance inflows of US$7.8 billion. According to the study, remittances represented 5.8% of Egypt’s GDP in 2008.

Patterns of Egyptian labour abroad

In addition to considering the relevant rules, regulations and policies governing investment in Egypt, the IOM study involved an empirical survey of 200 remittance-receiving households in Cairo, Monufeya, Fayoum, and Sharkeya. The research was considered unprecedented and cleared away a lot of the ambiguity that surrounds this economic activity.

It was found that Egyptian migration is essentially a male phenomenon, with men representing 91% of the senders in the sample. The migrants referred to were aged between 15 and 70 years old, with the median age of 35. Mr. Roberto Pitea, IOM’s regional research officer, pointed out another interesting find-the fact that remittance receivers are predominantly female (70%). He also said the organisation is now looking in depth into whether this results in more empowerment for women in migrants households. The IOM plan to share its results on this issue soon.

Generally, education levels among migrants are considered high, with 59% of migrants having completed university degrees. Ironically, the proportion of university graduates within the entire Egyptian population is only ten percent.

The study found that 81% of migrants work in Arab Gulf countries, Forty-seven percent live in Saudi Arabia, 12% in the Arab Emirates, 11% in Kuwait, 7% in Qatar, 3% in Oman, and 1% in Bahrain. The rest are divided among other countries, with 7% of the total sample worling in European countries.

Poverty sucking the Wealth up

The research team found that the remitted amounts ranged from LE110 to 15,000, while the median of sums received by the migrant families interviewed was LE1500. However, differences can be observed when results are analysed on a government level.

While respondents from Cairo reported a median remittance income of approximately LE3000, the median remitted sum in Fayoum was only LE600, which corresponds with the profile of migrants from there having significantly less university education in general and working in occupation that pay less.

Those who left the country with the explicit intention to save for investment number only 1%. However, 20% of remittance-receiving households were actually channeling remittances toward various forms of investments.

Of those who invest, almost half invested in real estate and a lesser number invested in small and medium enterprises, stock markets and agriculture.

Almost 80% of the study population is more concerned about utilising remittances to meet the daily needs of their families, including healthcare and education.

Although he encourages investing such remittances, Pitea does not undervalue the importance of this dominant trend of expenditure on non-profitable necessities. “Twenty-seven Percent of respondents said they used remittances for education and healthcare, which are a form of investment in human capital. This points to a very important role that remittances play in Egyptian society, in addition to poverty alleviation,” he said.

Investment Remittances do Not appeal

The study emphasizes the fact that approximately 80% of the migrant families interviewed in the four governorates surveyed do not invest at all.

When asked why they do not invest, the most frequent explanation from household heads related to the financial constraints they find themselves under, in addition to limited or no access to formal credit.

Twenty percent of the sample stated that the investment climate in Egypt is “too risky.” Another 10% reported that they lacked information on the different investment opportunities.

A large majority of respondents also believed that the government’s policies play an important role in their investment considerations. In Cairo, corruption, in various forms, were perceived as the primary obstacle to investing, while high taxes were the main concern in Fayoum.

Similarly, bureaucracy is an issue that troubles many of those interested in investing in both Monufeya and Sharkeya.

Ups and Downs

The IOM study depends on data collected until early 2009, however by the end of that year remittances showed a sharp decline, of approximately 17.8% compared with 2008, according to the World Bank.

Mohamed Saleh, an economic researcher at the University of Southern California, argued that this is an expected economic phenomenon in large remittance-receiving countries. “Such a decline percentage is expected maybe due to the major labour layoffs following any economic crisis in host countries.”

He added, “What happened in 2008 was normal economic behavior by foreign labour in any country that sends more money to their home countries when a crisis is censored for safety reasons and family support as well that might be experiencing more hardship.”

Saleh said however that remittances to Egypt will probably increase again, but gradually, since employment is always considered to be a lag factor after economic recover from crises.

This does not however necessarily change the value of IOM’s finding or recommendations.

False Hopes

The Egyptian government has taken several positive steps in reforming the legislative framework and opening up “one-stop shops” to improve the investment climate in Egypt and accelerate procedures, according to the study-but these provisions have not had a significant impact on migrants investors, due to a lack of information and the nature of this kind of investment, which is mainly in the form of SMEs, as they are not smartly targeted.

Pitea recommended to the Egyptian government that “it would be useful to establish specific programs in different governorates to provide business and investment advice to migrant families and the migrants themselves.”

He explained that this could be done by simply devising a migrant-specific outreach strategy for existing initiatives such as the micro-credit program administered by the Social Funds for Development (SFD), or the one-stop shop put in place by the General Authority for Investment and Free Zones (GAFI).

Interestingly, it was suggested that an information desk be set up at Cairo International Airport to provide information to homecoming Egyptians, which could be of high impact if carried out in tandem with all stakeholders.

Since the large majority of remittance receivers and investment decision makers are found to be females, Pitea hopes to start looking into gender responsive and family-specific programmes that can be developed to educate and assist wives in remittance spending and investment through improving their levels of financial literacy and capacity to better manage investment.

In terms of hard work, it seems that the government has done a lot to encourage investment, which is evident from the number of stakeholders involved. However, when it comes to outcomes relation to remittances, these are significantly limited, as the study proves.

Yet, the picture is not that pessimistic since it was clear during the study launch day that government representatives positively received and accepted the study’s findings, and IOM later declared that the government was supportive of the recommendations presented.

This article is originally published by Al Borsa