By Randy Jackson
During my time in Huatulco this winter season, I met a few migrants passing through on their way northward. My encounters and brief conversations were always pleasant and often left me thinking about them long after our meetings, hoping things would go well for them. Meeting and talking to someone who is a migrant establishes a human connection that immediately belittles ideas of national boundaries and immigration policy. The migrants I spoke to (all happened to be from Venezuela) may have been seeking refuge from conflict and hardships or possibly chasing dreams of opportunity and prosperity. Yet, regardless of their motivations, they will undoubtedly face years of difficulty, often as unwanted outsiders. Most will endure economic challenges yet send some earnings back home to loved ones mired in poverty. It is this collective action of migrants helping their families back home that gives rise to the economic phenomenon of remittances, possibly the world’s most effective poverty reduction program.
Remittances
Remittances are a well-studied economic phenomenon, and no wonder. In 2023, global remittances amounted to $860 Billion (USD). This total was almost entirely transferred in amounts of $200 or less via online transfer services such as Western Union. These digital transactions provide a wealth of information about the sources and destinations of these funds. Remittances support about 800 million people worldwide. Remittances generally go to the poorest people in the world’s poorest areas. World Bank studies have shown that most remittances go to purchasing food and education. Globally, remittances total three times more than combined government expenditures on development aid by rich countries.
Over 70 countries worldwide rely on remittances for at least 4% of their GDP, and Mexico is one of them. In 2023, Mexico received $63 billion (USD) in remittances, amounting to 4.5% of its GDP. By comparison, the Mexican oil and gas sector contributed 1.3% to the GDP. Of the remittances received in Mexico, 96% come from the United States, mainly from California and Texas. Of the $63 billion received in Mexico, $3.2 billion was received in Oaxaca, more than 10% of the state government’s total annual expenditures.
It’s worth noting that remittances sent by migrants don’t always originate from individuals residing in a country illegally. In 2022, National Public Radio (NPR) reported on one indigenous community in the state of Michoacán that survives entirely on remittances. The town of Comachuén, with a Purepecha population of 10,000, previously relied heavily on woodworking and textiles for its economic stability. However, as pine forests declined, this source of income experienced a significant decline over the preceding decade. This caused hundreds of young men from Comachuén to get temporary work visas in the USA, most of them working in upstate New York, often on the same farms year after year. Remittances from these agricultural workers support their families, enabling them to keep their traditional businesses of woodworking and textiles running. Remittances have also paid for the community church and bull ring.
As the example of the young men from Comachuén demonstrates, remittances benefit both the sending and receiving counties, whether from legal or illegal migration. There are millions of jobs in the US for which there are no available US workers. Agriculture is the most obvious example, as is also true in Canada. A great many crops could not be harvested without migrant workers. In September of 2023, there were 9.5 million non-farm job openings in the US, and even with three million illegal migrants entering the US in 2023, the unemployment rate in the country is one of the lowest in the world. Not enough temporary work visas are available in different sectors of the US economy to meet the demand. According to a 2023 report by the CATO Institute, migrant wage gains are between 4 and 10 times the pay level available in Latin America and the Caribbean. It is little wonder illegal immigration is at record highs. Migrants are often used as a xenophobic political football when in fact they are responding to a fundamental tenet of capitalism, the allowance of mobility to meet the demand for labour.
Who Else Benefits?
The amount of money represented by remittances is large enough that it doesn’t go unnoticed. Bankers, for one, drool at the possible commission on remittance transfers. The average commission paid on electronic remittance transfers is 6%. Mexico’s $63 billion would amount to about $3 billion annually. Immigrants, however, don’t use the banking industry very often, preferring other transfer services. When banks offer the transfer service, it includes the grind of their bureaucratic machinery, which speaks to their lack of popularity and even distrust by the immigrant senders.
Technology companies are another group of profiteers who seek to capitalize on what they herald as the “untapped market for financial transactions.” In January of this year, the Brazilian digital bank – Nubank – announced its largest operation outside of Brazil, in Mexico. It plans to partner with Félix Pago, an online remittance service based on WhatsApp, to enable Felix’s 5.5 million Mexican customers to receive money transfers from the United States.
As beneficial as migrants or remittances are to both the sending and receiving countries, it should come as no surprise that bad actors are taking advantage of migrants in the most disturbing ways, and organized crime is using the remittance system to skirt money-laundering laws. Numerous news articles address the issue of Mexican narco-traffickers using the cover of remittances to repatriate funds to Mexico. Reuters reported in an August 2023 article that one individual was convicted in the US of money laundering by sending thousands of small transfers amounting to $25 million USD to fake recipients in Mexico over several years. The article also reports that the average (legitimate) remittance transfer to Mexico was $390 US in 2022. The typical size of remittances makes any large transfer stand out in the controls and monitoring of remittances, yet few stones are left unturned by enterprising criminals.
A Failed Government Effort?
The Mexican government recognizes the efficacy of remittances in aiding the country’s poorest communities. To this end, they have instituted a program titled 3 X 1. This program seeks to match $3 to a community project for each $1 contributed by Mexicans living abroad. This targets not the individual or family remittances, which is the overwhelming majority of the total remittances, but a different subset known as collective remittances. These are remittances sent by migrant associations in the United States, which collect and remit funds to specific communities in Mexico.
However, a 2014 study of this program by the Latin American Research Centre at the University of Calgary concluded that there was little uptake. Of the two communities studied that received collective remittances for specific community projects, no government money was ever received. Migrants were once again on their own.
As witnessed this past winter in Huatulco, the stories of migrants, their aspirations, and their challenges highlight the human element beyond political debates on immigration policies. Even with the need for immigration in wealthy countries coupled with the effective poverty reduction worldwide that remittances provide, it doesn’t mean we won’t screw it all up. For now, I just hope those Venezuelans I spoke to and their little kids curiously looking up at me will all make it safely to their northern destination.