ANALYSIS: OF LEVERAGING REMITTANCES:
DR MANGUDYA in the mid-term monetary policy review came up with savings bond and diaspora incentives as key policy measures aimed at mobilising diaspora remittances. In support of these measures, this week’s article showcases African experience on the same.
According to Africa Development Bank, Ethiopia is one of few countries in Africa which issued diaspora bonds as a tool of fostering diaspora investment.
The Millennium Corporate Bond was issued in 2008 by the state-owned utility, that is, Ethiopian Electric Power Corporation (EEPCO) for the construction of the Grand Ethiopian Renaissance Dam (GERD). In order to raise confidence of the subscribers, the bond was underwritten by National Bank of Ethiopia (NBE).
In order to raise the impetus of the bond and to reach as many as Ethiopians in the diaspora, the bond was marketed through networks in countries of the OECD and the Middle East by the Commercial Bank of Ethiopia (CBE) to non-resident Ethiopians and foreign nationals of Ethiopian origin only.
The interest rates on the bonds are 4 percent, 4,5 percent and 5 percent respectively for 5, 7 and 10 years bonds. The face value of the bond as noted by Africa Development Bank is $100 and the Government required a minimum investment of $500 or its equivalent in selected convertible currencies.
To make the bond attractive, investments in the diaspora bond can be used as collateral for borrowings from local banks in local currency and the interest is tax exempt at the source.
GERD will be the largest hydroelectric power plant in Africa (10th in the World) with over 6 000MW capacity when completed.
The Dam will increase Ethiopian’s installed power generation capacity by 200 percent (that is excluding Gibe III, which has begun generating power. With a potential capacity of 45 000 MW hydro-power potential, Ethiopia will become a major power exporter. In the medium term, Ethiopia could generate US$1 billion foreign currency from power export, and reduce Ethiopia’s dependence on imported petroleum.
In addition to potential export earnings, reliable and affordable electricity will help Ethiopia to achieve its ambitious strategy of industrialisation which it recently embarked.
Moreover, the dam construction process builds local capacity through learning by doing, knowledge spillover and the transfer of technology. A case in point is the role of the Metal and Engineering Corporation (MEtEC), which is the main contractor on divisions of the electromechanical and hydraulic steel structure.
The construction of the Dam has created employment opportunities for over 10 000 people, and at its peak will employ 15 000. The resource mobilisation process has encouraged the culture of saving, where the national saving rate has increased from 9,5 percent to 22 percent during the last five years as noted by Tesfaye.
Beyond the benefits of industrialisation, job creation and foreign exchange generation, 74 million metric cubes of water, the project will create a manmade lake double the size of Lake Tana, unlocking huge potential for agro-fishery development and tourism.
The diaspora purchased shares amounting to US$30 million.
To date, $425 million has been raised with employees, businesses, farmers and government of Ethiopia being major subscribers.
The GERD requires a staggering $5 billion to complete.
Because the average annual per capita income of the diaspora is some $14 000 and the fact that remittances inflows to Ethiopia in 2014 were $3,7 billion as noted by National Bank of Ethiopia, which far exceeded all foreign direct investment flows, or all official development assistance, there is scope for the Ethiopian government to mobilise more investments from the diaspora.
Experts underscored that Ethiopian Government must pay attention to the following: ◆ Address “confidence-gap” and “trust-deficit” issues within sections of the diaspora community through community dialogue and partnership working. ◆ The Ethiopian Government could do more by removing potential barriers and obstacles and creating further opportunities for the diaspora to participate in economic development, mapping out and profiling the diaspora population, building sustainable partnerships, facilitating their involvement in the country, consolidating the diaspora’s sense of attachment to their home country and further developing actionable strategies and enabling institutions. Evidence and literature on diaspora has shown that diaspora policies work best when the diaspora are engaged with as full partners, that is, when diaspora engagement is a two-way process, meaningful and sustained. The diaspora bond was largely marketed on a patriotic basis which seeks to persuade the Ethiopians in the diaspora to invest in their home country based on moral suasion. However, in addition to making the “patriotic case”, it is important to make the “business case” for purchasing diaspora bond. The GERD Bond provides rate of returns based on floating international rate of returns, that is, London Interbank Offer Rate (LIBOR) of +1,25 percent to 2 percent and maturities ranging from 5 to 10 years. The potential diaspora investors especially in Europe and North America cannot get the returns provided GERD Bond on their saving deposits in most banks in the US and the
EU. Most importantly, recent rating of Ethiopia by Moody which ranked the economy at B+ shows healthy and credible economy. These factors provide for the need to approach of taking the diaspora bond to the Ethiopians outcome the country on a business case rather than sympathetic one. Together we make Zimbabwe great.
It is important to underscore the need to learn from international best practice in the promotion and mobilisation of diaspora bonds, such as the Israeli and Indian diaspora bond initiatives, which involved systematic, comprehensive and sustained as well as targeted campaigns by the highest leadership of those countries. Building on current achievements and taking into account national characteristics, it is feasible and viable to emulate such successful best practices by the highest leadership of federal and regional government in Ethiopia.
Like Ethiopia, Tunisia also came up with Diaspora Mobilisation Framework which aimed at mobilising remittances. Tunisia established the Office of Tunisians Abroad (OTA) under the Ministry of Social Affairs and Solidarity in 1988 through Government Law (Art. 14 Law No. 60-88).
The mandate of the office is to manage the major decisions and actions aimed at promoting active participation of Tunisians abroad in national development and for ensuring the welfare of transnational families, both abroad and at home.
Of interest, the OTA facilitates investments, savings, business development and entrepreneurship activities of the Tunisian diaspora in their country of origin and provides government with necessary data and other information for policy formulation on services to the migrants and their trans-national families.
Tunisia’s Incentives for the Diaspora: Economic and financial incentives to facilitate diaspora contributions include exemptions from customs duty on imported equipment; rolling stocks are available to Tunisians who have lived abroad on a continual basis for more than two years and who have invested in any activity listed in the investment incentives code upon definitive or provisional return to Tunisia.
Each year, OTA organises Development Support Days in collaboration with the country’s provincial regions.
Activities include tour of investment projects undertaken by the diaspora, and opportunities for the Tunisian business community and the diaspora to interact as a way of boosting partnerships between entrepreneurs who are resident abroad and counterparts at home.
Remittances: Remittances from Tunisians abroad are among the main sources of foreign currency for Tunisia.
These transfers constitute the fourth foreign currency resource and they play an important role in the balance of payments and national reserve currency of Tunisia.
Remittances represent 4,8 percent of GDP, 21,8 percent of national savings and 43,7 percent of trade deficit.
According to OTA, these remittances totalled about $16,5 billion between 1987 and 2008 of which, 76,6 percent were in cash and 23,4 percent were in-kind transfers (such as equipment acquired for economic activities in Tunisia, vehicles and movable goods imported as part of provisional or definitive return, etc).
OTA reported that in 2007, Tunisians abroad sent home $1,72 billion, which amounted to an average of $166 per Tunisian abroad, compared with $125 average for Arab States.
Engaging the highly-qualified Tunisian diaspora: OTE maintains and regularly updates a database of Tunisian expertise located abroad, and facilitates their connections to home country institutions.
The database improves knowledge about diaspora contributions to technical, economic and social development.
Economic impact of diaspora engagement in Tunisia: The economic instruments and incentives instituted by the government have led to 11,815 ventures with a total investment of about $308 million and employment for about 48 000 people.
These ventures have been mainly in the service sector (65 percent); industry (25 percent) and agriculture (10 percent).
Experience from Ethiopia and Tunisia has shown beyond reasonable doubt that engaging diaspora through bonds and various incentives works.
It is therefore imperative that we rally behind measures enunciated by the Reserve Bank to build the Zimbabwe we want.
As we implement these measures it is important to take into account lessons from Ethiopia.
Together we make Zimbabwe great.