The Remittance Paradox

Migrant workers and the Gulf economy

A couple days ago, Bloomberg had a very interesting story. It went something like this — “Migrant workers from Asia’s developing countries have managed to send home record amounts of money in recent months, defying pandemic expectations and propping up home economies at a critical time.”

On first reading this sounds like great news. But alas, there's more to this story than what meets the eye. However before we get to the juicy bits, some context.

India has had long ties with countries in the Gulf Co-operation Council (GCC) i.e. Bahrain, Oman, Kuwait, UAE, Qatar and Saudi Arabia. Close to 10 million Indian citizens live and work here. And they play a pivotal role in the region’s economic development. More importantly, they repatriate a bulk of their earnings. Meaning they send their savings back home. And these remittances add up. For instance last year, they totaled ~$50 billion. That’s a lot of money. And make no mistake, this money will enter the Indian economy. Households might choose to invest their savings or consume it immediately. But either way, it aids growth in our country.

So when you see remittance figures shoot up, there’s very good reason for you to be excited. Unfortunately, this time around, we might be seeing these trends for an entirely different reason.

For instance, when Covid-19 made landfall, my brother, who happened to work in Qatar packed his bags and headed home fearing that an eventual lockdown might leave him stranded. And considering the uncertainty surrounding the whole issue, he also decided to liquidate (sell) most of his investments and send it back to India. Even others were laid off much earlier and were forced to sell and repatriate whatever little they owned.

So it’s no surprise that remittance figures have seen an uptick. But there’s no reason to cheer this development either, because my brother isn’t sure if he will ever go back considering the precarious nature of the gulf economy right now. And if there are more like him, they’ll have to face similar prospects too.

Think about it. Oil prices have stayed low for quite a while now. And there is some consensus that demand for crude oil is going to crater even after the pandemic tides over considering fears of a global recession still loom large. And since GCC countries largely rely on oil money to fund their spending programs, we have an immediate problem. After all, government entities are responsible for employing a quarter of GCC's population. Most of them are blue collar workers — working construction and maintenance jobs. So when the government has to cut spending, layoffs inevitably follow.

More importantly, during times of economic recession, GCC countries flock to protect the local population. As one report from Orfonline noted —

“Following the oil price drop and resultant economic decline in 2015–16, the GCC countries enacted measures to reserve jobs for locals and reduced the number of visas issued to migrants. A study by Gulf Talent on employment trends in 2016 found that following the oil shock, these countries took steps to not only increase the number of citizens in private-sector jobs, but also laid-off many foreign workers. Emigration from India to the GCC countries halved between 2015 and 2017.”

And so if the expat population can’t go back, those remittance figures might never look this good for a long long while.

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Shrehith Karkera is a cofounder at Finception.