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NRB remittance and investment

Abdullah Shibu
IN the February 5 and 6 issues of The Daily Star. Dewan Sadek Afzal and Dr. Halimur Rashid Khan identified some important issues affecting NRB remittances and offered various policy options to facilitate and increase inflow of remittances from abroad. I will spotlight two important issues men honed in both Afzal's and Khan's papers, given that these issues have important policy implications.
They are; reduction of the costs of remittance, both in monetary and real terms, and methods to enhance the attractiveness of money transfers to Bangladesh and of reinvestment Another item is outreach and publicity targeting the expatriates in every country with a sizeable NRB concentration.
Diversity within NRBs
I believe that future policy initiatives to increase NRB remittance, and its productive utilisation, need to be framed not only in the context of
Bangladesh's economic environment, but also be informed by objective conditions in the host countries. As 1 travel in Canada. UK and Saudi Arabia, I am reminded of the diversity in the economic conditions that define their current existence and future opportunities for employment and investment.
In a recent conversation with an NRB friend who has been working in Singapore, I learnt that he and his family are debating whether to buy an apartment in Dhaka or a condominium in Canada. While I can see that not all NRBs face this dilemma or choice, I can see that many of them do face a complexset of opportunities.
1 have also become aware that the Bangladeshi diaspora comes in different shapes and sizes, and a government agency, or -secretariat," that is charged with "NRB affairs" would be well-advised to consider these angles in proposing any policy actions to the new Parliament A "one size fits all" policy or program will not be able to take full advantage of the remittance pool, and a sizeable
magnitude will remain untapped.
The economic perspective Secondly, allow me to raise another point that might be obvious to some readers but is worth reiteration. An individual's, or a household’s, decision to remit is, in part, an act of saving or postponement of immediate consumption. From an economist's perspective, an NRB's decision to save and remit is to a considerable degree driven by a rational process where he/she weighs the choices he/she faces with his/her earnings, and the opportunities for investment in both the host country and Bangladesh.
This has been documented in several studies done in Bangladesh, India, and Nepal on this topic. For example, a study done by Dr. Ferdous Murshid and his colleagues at Bids shows that migrant workers weigh the savings and investment decision, as well as the channels to utilise them, in a much broader context than was previously considered.
An implication of this apparently
simple concept is worth pursuing. The opportunities that an NRB in Oman faces are different from those available to NRBs in Australia or the USA. For example, when a Bangladeshi worker in Saudi Arabia, faced with the option of indulging in Immediate consumption (e.g., purchasing a new TV) or transmitting it to his brother in Comilla (for example, to renovate his dwelling or to buy land), he is weighing die costs and benefits of current vs. future consumption.
However, die circumstances diat a Bangladesh living in Sydney or New York City works under are somewhat different. The policies that the government of Bangladesh adopts needs to weigh these diverse aspects, and attempts to maximise the impact on these groups.
For one group of NRBs, the chief attraction of investment in Bangladesh may be for long-term employment and sources of income after return to Bangladesh. However, for another group, particularly those living in the UK and USA, the law and order situation and the rules and regulations on foreign investment and capital assets may play a larger role in the choice of investment.
Remittances and investment in rural areas
In my book "Investment Opportunities, Household Savings,
and Rates of Return on Investment," I show with household level data that even in poor rural households, an important determinant of interhousehold differences in the savings rate is the opportunity for investment. For households that have access to better investment opportunities (ergo, higher return), the rate of savings and investment is higher. Studies done with Latin American immigrants in the USA show that countries with weaker financial systems tend to have lower per capita remittances.
In Bangladesh, we find that, where rural investments opportunities or financial intermediation are lacking, savings tend to flow towards money lending, land speculation and non-productive investments. Non-productive investments can be identified as those uses of resources that do not immediately increase the productivity of the economy or that of the investor.
Global economy and opportunities
Finally, NRBs, whether they are IT professionals or construction workers in the UAE, are well aware of the financial returns of savings and investments at home and abroad. As Sadek aptly argues, the government of Bangladesh needs to play an active and vital role in safeguarding the returns from
investment in rural areas to promote greater NRB remittances.
Various studies have identified three major uses of funds by NRBs and their families; land purchase and speculation, home improvement, and consumption. As is well known, land prices in both rural and urban areas are increasing due to population pressure and influx of NRB capital. As studies show, returns from land speculation are in the vicinity of 15 to 20% per annum. This speculative boom acts as a sponge for investable resources and drives up the cost of productive investment.
Policy makers may also need to promote other opportunities for investment for NRBs temporarily settled in the USA, Canada, UK, and other industrialised countries, but are considering returning to Bangladesh and/or are looking for investment outlets. At the recent Rehab housing fair in New York City, a casual conversation with the throngs of expatriates at the various booths is sufficient to make one aware of the potential reservoir of investment funds that might be augmented with outreach efforts and policy packages.
Policy implications
Once we accept the above premises, we cannot over-emphasise the corollary; policy recommenda-
tions to enhance NRB remittances need to be informed by and reflect the reality on the ground. NRBs working In North America face a very different set of objective conditions than those faced by NRBs in the Middle East. The tax structure, financial returns, choice of investment vehicles and their respective liquidity, to name a few components, are widely divergent in the environments that the saver-cum-investor faces.
If I were to wear the hat of a policy-maker in Bangladesh trying to formulate a set of policies to improve the relative rates of returns (in real terms) for the NRBs, the relevant questions that need to be asked are:
• What are the uses to which the resources are going towards?
• What are the transaction costs, and how to minimise them?
• What are the best ways to channel the resources coming from abroad to improve the returns for the NRBs?
I soon discovered that hard data is very difficult to come by, and is often outdated. However, it is almost universally accepted that the transaction cost of transfers is substantial, because of which some real opportunities to increase remittances are missed.
More needs to be done in the area of policy research. I will argue
that we operate with very little information on these vital aspects of the equation. Even in a country like India, where remittances playa major role in the economy, a recent study conducted by the V.V. Giri National Labour Institute laments that "there have been certain lacunae in policy and research on the promotional aspects of remittances."
However, there is no reason to berate oneself for missed opportunities and lost time. Some good initiatives have been taken, and there is awareness all around that good policy has a positive impact on NRB remittances, and vice versa. A case in point; the governor of Bangladesh Bank admonished commercial banks for not following the central bank instructions that asked them to reach remittances within 48 hours to urban beneficiaries, and within 72 hours to the rural ones.
One can confidently predict that stricter enforcement of these various policies and adoption of other best practices will boost the inflow of NRB remittances and their productive utilisation in the coming
Dr. Abdullah Shibi is an econom.-$t and IT professional based in Boston. MA USA He is also a Managing Partner of NAS Enterprises. LLC, an international consulting firm.
***More needs to be done in the area of policypesearch. I will argue that we operate with very little information on these vital aspects of the equation. Even in a country like India, where remittances play a major role in the economy, a recent study conducted by the V.V. Giri National Labour Institute laments that "there have been certain lacunae in policy and research on the promotional aspects of remittances."***