Remittances surge in Middle East

The Middle East and North Africa region experienced the fastest growth in remittances in 2012. Published in MEED, 12 June 2013

As the global economy continues its gradual recovery after several years of crisis, remittance flows to the world’s developing nations are growing, and nowhere faster than in the Middle East.

According to the latest statistics from the Washington-based World Bank, officially recorded remittance flows to developing countries reached an estimated $401bn in 2012, marking a 5.3 per cent increase compared with a year earlier. The figure for the Middle East and North Africa (Mena) region rose almost three times as fast and was up by 15.6 per cent to $50.8bn.

Globally, the biggest recipients are mostly in Asia, with six of the top 10 countries, led by India with $69bn and China with $60bn. But two countries from the Middle East also feature in that group of 10. Egypt is in 6th position with $21bn, while Lebanon is in 10th place with $7.5bn.

Top market

Overall, Egypt received 40 per cent of the total remittances to the Mena region in 2012, followed by Lebanon with 15 per cent. Just behind came Morocco, with $6.9bn and 13.6 per cent of the total, and then Jordan with $3.6bn or 7.2 per cent.

The World Bank attributes the global rise in remittances to the improving economic position of many of the countries that provide jobs and, by extension, the funds. But the figures for the Middle East are skewed by particularly fast growth of 43 per cent for Egypt last year. That is, in part at least, explained by the return of large numbers of migrant workers from Libya, who repatriated their assets at the same time.

Sudan too saw a huge jump in net remittance flows, rising 155 per cent from $442m in 2011 to an estimated $1.1bn in 2012. However, the figure for 2011 (the year of South Sudan’s secession) was actually the lowest the country has seen since 1997 and the rise last year was more a case of a return to the norm. In all, 10 countries across the region receive sizeable amounts of remittances every year. A full breakdown for 2012 is not yet available, but the figures for 2011 make it clear there are some divisions within that broad picture.

Along with Egypt, both Sudan and Yemen look to the GCC as the most important source of remittances. For Algeria, Morocco and Tunisia, however, it is European countries that provide the majority of funds. Of the other recipients of remittances in the region, Jordan relies primarily on flows from the West Bank and Gaza followed by the GCC, while Syria, Lebanon and Iran have a more diverse mix of sources.

For countries able to lean on the oil-rich GCC markets, these are obviously good days. The Gulf states are growing fast and provide a steady source of work as they continue to build up their infrastructure and try to diversify their economies. The GCC accounted for 84 per cent of the $1.4bn in remittances to Yemen in 2011, for example. For Egypt, the figure was 50 per cent, or $6.9bn, while for Sudan it was 46 per cent or $620m.

Even within those figures there are some stark concentrations. Yemen relies almost exclusively on Saudi Arabia, for example, with its northern neighbour accounting for $1.1bn of the total sent back to Sanaa, Aden and other towns. A current push in Saudi Arabia to expel illegal workers is expected to hit Yemenis hard and could present problems for the country’s economy as remittances account for some 4 per cent of Yemen’s total gross domestic product (GDP).

The remittances story is not just a tale of oil money trickling from the Gulf to poorer Arab countries to the west and south. A cluster of countries in North Africa have traditionally looked to Europe as a source of jobs and remittances.

For Algeria, Morocco and Tunisia, it is France (and to a lesser extent Spain and Italy) that is the most important source of remittances. In Algeria’s case, 90 per cent of the $1.9bn of remittances that flowed into the country in 2011 came from Europe, with the vast majority of that coming from France. For Morocco, the equivalent figure was $6.3bn or 86 per cent, while for Tunisia, it was $1.6bn or 80 per cent.

Europe slowdown

As EU economies have struggled in the wake of the global financial crisis, remittances from the region have declined. Together with a drop in tourist arrivals from Europe, this is leading to wider current account deficits for the North African countries, according to London-based research firm Capital Economics.

Of the other countries, Jordan is unusual in relying on people in the West Bank and Gaza to provide the biggest share of its remittances. At $1.5bn, it was equivalent to 46 per cent of the total in 2011. A further 30 per cent, or $962m, came from the GCC and $496m (15 per cent) came from North America.

The Syrian, Lebanese and Iranian diasporas are more geographically diverse, however. The four most important sources of remittances for Beirut are the US, Australia, Canada and Germany. Indeed only one Arab country is in the top 10 source countries for Lebanese remittances and that is Saudi Arabia. The biggest single regional source is North America, followed by Europe, Asia-Pacific and the GCC.

Iran receives sizeable proportions of its total from the GCC, which contributes 16 per cent or $213m, although the rest of the Mena region provides more than twice that amount with $506m (38 per cent). A further $243m (18 per cent) comes from Europe. Iran is also the only country to receive relatively large amounts from Latin America, with $202m in 2011, or 15 per cent of the total that year, mostly via Panama.

Syria remittances

The final country, Syria, saw $606m (31 per cent) of remittances come from the GCC in 2011, while $717m (36 per cent) came from other parts of the region, $357m (18 per cent) from Europe and $242m (12 per cent) from North America. However, given the way that sanctions have been ramped up on the country as the civil war has continued, these figures could have changed substantially since then.

In terms of the importance of remittances to the economy, it is the smaller countries where they have the biggest impact. By this measure, Lebanon comes out on top, with remittances equivalent to 18 per cent of its GDP in 2011. The next most-dependent is Jordan, where they account for 12 per cent of GDP, followed by Morocco at 7 per cent and Egypt at 6 per cent.

There can be benefits for recipient and source countries alike from these flows of funds, not least for the banking sectors on both sides of the transaction. Lebanese banks, for example, benefit hugely from remittances into the country as the resulting deposits fund more than 80 per cent of the banking system’s assets according to Moody’s Investors Service, a US credit rating agency. That in turn means the banks’ exposure to market funding is kept far lower than it otherwise would be, providing stability for Lebanon’s financial sector.

And for banks in the countries providing the funds, there is money to be made too. “Remittances is a good business to be in, with good profits,” says a banker based in Riyadh, who adds that one Saudi bank makes more profits from processing remittance payments than from any other single area of its business.

Data on official flows only captures a portion of what is going on. Illegal financial flows involving countries in the Middle East are growing fast, although here the money is more often flowing out of the region rather than into it.

Illegal flows

According to research from US-based Global Financial Integrity, these illegal flows amounted to $76bn in 2010, the most recent year for which it has figures. More worryingly, they grew by an average 26 per cent a year over the decade leading up to that.

Overall, remittance flows to the Mena region are expected to grow in the coming years, albeit by more modest amounts. The World Bank expects remittances to increase by 5-6 per cent a year between now and 2015, to reach $58bn by the end of that period. That is a slightly lower growth rate than for the world as a whole, which the World Bank forecasts to be 8.8 per cent a year, reaching $515bn by 2015.