Community, Diaspora and Immigration
How poor countries can tap emigrants’ savings
HOW can emigrants help the countries they have left? The usual answer is: by sending money home to support their parents, put cousins through college, and so on. Such remittances are important, says Dilip Ratha of the World Bank, but it is not enough to tap the income of migrants abroad. Poor countries should also tap their savings. One way is to sell diaspora bonds.
The idea is simple. Poor-country governments can issue bonds and market them to emigrants in rich countries. There are several advantages to milking members of a diaspora. They are often patriotic: they like the idea that their savings will pay for bridges and clinics at home. They are patient, since they have a long-term tie to the issuer. They are less jittery than other investors, too, since they have friends who can tell them whether political unrest is really as bloody as it looks on television. And they are sanguine about currency risk. If the Zambian kwacha crashes, an expat Zambian can buy his mother a cheap house.
Israel and India have successfully issued diaspora bonds in the past. A desperate Greek government is pursuing the idea, too. Diasporas are larger than ever—more than 200m people live outside the countries where they were born. They are richer, too: migrants from developing countries have saved an estimated $400 billion. Thanks to cheap phone calls and flights, migrants often remain in close touch with their homelands. And they are not hard to reach: governments could approach them via the money-transfer companies that they already use.
The World Bank is advising several nations about diaspora bonds. Kenya, Nigeria and the Philippines may soon set up pilot schemes. Nigeria’s incoming finance minister, Ngozi Okonjo-Iweala, is particularly keen. In the past, many poor countries were so fiscally profligate that no sane investor, even a patriotic one, would lend them his own money. Most are now reasonably creditworthy.
Diaspora bonds will face obstacles. Migrants who fled oppressive governments, for example, can hardly be expected to bankroll the regimes that drove them away. This is perhaps why Ethiopia’s recent diaspora-bond issue flopped. But for many poor countries, the bonds are an idea worth trying.