Middle East remittances remain volatile

Remittance flows began to grow again last year, but could be hit if oil prices stay low. Published in MEED, 18 May 2015

The amount of remittances coming into the Middle East began to grow again in 2014, after falling the year before, according to the latest data from the World Bank.

The Washington-based organisation says that total inflows of remittances increased by 7.4 per cent in 2014 to $53.8bn, with the strongest growth seen in the West Bank and Gaza, Lebanon and Egypt.

The amount of money that expatriate workers send back to their home country can be extremely volatile. Since the turn of the century, remittance inflows in the Middle East have grown by as much as 28.2 per cent a year (in 2003) and fallen by as much as 6.4 per cent a year (in 2009).

As a result, there can be no certainty that last year’s performance will continue this year. Nonetheless, it will have come as welcome news to many of the region’s poorer countries.

Egypt inflows

The largest recipient of remittances is Egypt, which benefited from inflows of $19.6bn in 2014, a rise of 10 per cent on the previous year’s figure of $17.8bn. Saudi Arabia is its biggest source country for these transfers, with almost $7.6bn being sent back by Egyptians working in the kingdom last year. Other Gulf countries such as Kuwait and the UAE are also important source markets for transfers.

Turmoil in some other countries around the region has caused problems for Egyptian workers, however. The main reason for the 7 per cent drop in Egyptian remittances in 2013 was the conflict in Libya, which had been its fourth-largest source of inflows, amounting to more than $2bn in 2012. The following year those transfers all but dried up, with just $95m being sent back.

The figure rose only slightly in 2014 to $104m. Similarly, flows from the West Bank and Gaza to Egypt fell from $535m in 2012 to just $77m in 2013 and only recovered modestly to $85m last year.

As those markets have faded, the Gulf states have become increasingly important. The amount of money being sent back by Egyptians in the GCC has risen from $9.9bn in 2012 to $14.3bn last year, a rise of 44 per cent in the space of just two years. These figures suggest that many Egyptians may have moved from Libya to find work in the Gulf states.

Most of the other large recipients of remittances around the region are in the Levant and North Africa, although Yemen also features strongly.

Lebanon is the second-largest, with $8.9bn last year. Such funds have long been an important element in the country’s financial stability, providing a vital source of deposits for banks and helping to underpin economic activity more generally, even while the political system continues to struggle.

“Lebanon is affected very much by political paralysis,” says Steffen Dyck, a senior analyst at the US’ Moody’s Investors Service. “But Lebanon is benefiting a lot from remittances from the Gulf and from other regions. The liquidity in the [banking] system is relatively high and helps the government to finance itself.”

The originators of Lebanese remittances are geographically far more diverse than is the case with Egypt. While Saudi Arabia was the largest source of funds last year, the second-biggest was the US, followed by Australia, Germany, Canada and France.

The situation in Jordan is somewhere in between, with Saudi Arabia again the most important provider of remittances, followed by the UAE and the US. Yemenis, meanwhile, work predominantly in the other Gulf states. Of the $3.5bn in remittances that they sent home to Sanaa and Aden last year, $2.2bn was from Saudi Arabia, $562m from the UAE, $172m from Kuwait and $158m from Qatar.

In contrast, workers from the North African countries of Morocco, Tunisia and Algeria are more likely to head to Europe for work – a result of both the historic, colonial ties to these countries and the size of the European market.

For Morocco, the third-largest recipient of remittances in the region, it is France and Spain that are the most important markets. Of the $7bn sent back by expatriate Moroccans last year, more than half of it came from those two countries, with France providing $2.1bn and Spain $1.7bn.

The top five source markets are rounded out by three other European countries: Italy; Belgium; and the Netherlands. Within the Middle East, Morocco’s biggest provider of remittances is Israel, which was seventh-largest overall, with $369m last year, followed by Saudi Arabia in 11th place with $51m.

French funds

It is a similar tale for Tunisia, with France, Italy, Germany and Israel the top four markets last year. France is the dominant source, accounting for $1.4bn of the total $2.3bn that Tunisia received in remittances in 2014.

The situation is even more pronounced in the case of Algeria, where France accounts for $1.7bn of the $2bn in remittance inflows to the country. The next largest market was Spain, but that provided just $65m of the total.

The anaemic economic performance of Europe in recent years has contributed to rather slow growth in remittances for these North African countries and there is little sign that the situation will change anytime soon.

The total value of remittances from France, Spain and Italy to Algeria, Tunisia and Morocco has risen from $7.5bn in 2010 to $8.3bn in 2014.

While they worry about the economic performance of the major EU markets, countries elsewhere in the region that rely on remittances from the Gulf states have other concerns on their minds.

It is not clear what the full impact of low oil prices will be on the oil-exporting economies, but some GCC governments have been trimming their spending plans, and growth projections have been lowered.

The spending cuts to date have been focused on delaying or cancelling large capital projects, in an effort to keep budget deficits at a manageable level. If that trend continues, it could mean there will be fewer jobs for expatriate workers from countries such as Egypt, Jordan and Yemen.

Limited risk

Much depends on how long the current period of relatively low oil prices lasts and the willingness of Gulf governments to keep on spending. US ratings agency Standard & Poor’s suggests the remittances coming into Jordan should remain stable for this year at least.

“Although 80-90 per cent of the Jordanian diaspora is concentrated in the Gulf states, we see limited risk that remittances will decrease because workers are employed across diverse industries,” the agency noted in a ratings report on Jordan published on 24 April.

“We also expect remittances to remain stable because public spending in GCC countries, and overall growth, will continue despite lower oil prices.” Of course, it is not just other Middle East countries that will be affected if work for expatriates in Saudi Arabia, the UAE or the other Gulf states starts to dry up. The money sent home by workers from Asian countries easily outstrips the amount that goes to other Arab destinations.

The largest recipient country by some distance is India, which last year received $37bn in remittances from its expatriates within the region, almost all of which came from the GCC. Some $12.6bn was sent home by Indians working in the UAE, $10.8bn originated in Saudi Arabia, and $4.7bn in Kuwait.

Among the other major beneficiary countries, Pakistan received a total of $10.6bn, followed by the Philippines with $9bn, Bangladesh with $8.4bn, Indonesia with $4.5bn, Nepal with $4.2bn and Sri Lanka with $3.6bn.

By comparison, among Arab countries the largest recipient of remittances sent from within the region was Egypt, with $16.4bn. Yemeni workers sent home $3.2bn and Jordanians sent back $3.1bn. In all cases, the vast majority of these funds came from the GCC markets.

Economic links

Of course, money does not only flow in one direction. Within the Gulf, there are Qataris in the UAE who send money back to Doha, and Saudi nationals working in Kuwait who do the same for their country. And while some nations are predominantly receivers of remittances, such as those of the Levant, they all also host workers from other countries.

Some $2.9bn in remittances was sent from Jordan last year, for example, with the main destinations being Egypt, the West Bank and Gaza, and Syria. Similarly, some $796m was sent from the Palestinian territories, with the bulk of it going to Qatar, Jordan and Israel.

All this highlights the economic interdependence that exists between the countries of the region. It also means that remittance flows are likely to remain volatile in the future, with poorer countries across the region affected whenever the richer nations suffer a downturn.