Remittances

Someone recently pointed me to this article in the Abu Dhabi newspaper The National. It is one of the most interesting pieces I have read in a long time on the political economy of the Middle East. John Lavois, one of the newspaper's senior editors, weds some beautiful anecdotal reporting with broader musings on the moral and economic implications of remittance flows from the UAE's foreign-born underclass.

Remittances are an incredibly important part of the Middle Eastern economy. In the non-oil states, remittances from nationals working abroad make up significant portions of gross domestic products. In oil states, like the UAE, workers from poorer countries (both within and outside of the Middle East) form a large majority of laborers and service workers and many of them remit as much as 90% of their wages to their families back home. Remittances therefore shape the region's economy in every possible way -- they flow into, out of, and within the borders of the Middle East.

Some of the facts are startling. According to this article, for example, a total of $34.7 billion flowed into the Middle East and North Africa in the form of remittances in 2007. That is a larger amount of money than the entire GDP of Jordan. The World Bank estimates that the top recipients of remittance payments in the region are, in order: Egypt, Morocco, Lebanon, Jordan, Algeria, and Tunisia. In some of these countries, sizable proportions of national GDPs are composed of remittances. Lebanon, for example, relies on remittances for one quarter of its GDP; in Jordan they comprise one fifth. Morocco, Tunisia, Egypt, and Yemen all rely on remittances for roughly 6% of their GDPs.

On the flip side, the remittance flows coming out of countries in the Gulf are equally striking. The World Bank calculates, for example, that only the United States sends out more remittance payments than Saudi Arabia, which in turn sends out more than rich European countries like Germany and Switzerland.

The relative weight of these remittances on the economies of so many Middle Eastern countries is all the more striking when the nature of these payments is actually considered. Most of the payments are relatively tiny; they are micro-payments, proportions of wages that are already startlingly low. The National article does an especially good job of demonstrating the truly "micro" nature of these payments. Their relatively large weight on very "macro" economic forces says a good deal about how many laborers there really are living and working in countries other than their own.

The article also tells a story of real moral ambiguity. The Gulf's foreign-born labor force is often held up as a sign of all that is perverted and wrong about its political economy. Rich locals, too spoiled and pampered to take menial jobs, rely on foreign-born workers, often living in sub-par conditions, with few rights, and depressed wages, to perform the basic tasks necessary to run a society. In places like Dubai, where growth has been happening at a dizzying pace, foreign labor has been even more important, a key driver behind the emirate's frenetic modernization. The sad paradox of cities like Dubai, critics say, is that while half the city lives and plays in a grown-up's version of Disney Land, the other half of the city lives in squalid labor camps that don't even appear on maps, too scared to speak up for fear of losing a job that is supporting an entire family thousands of miles away.

But there is another story to tell, as well -- one of economic empowerment, of new opportunities, of globalization harnessed in a way that enriches the formerly impoverished. As the National article points out, there is a reason so many workers continue to migrate to the Gulf, in spite of its deplorable labor conditions. Indeed many development economist argue that lower barriers to immigration and maximizing labor mobility is one important way by which poor countries can develop. Some see the large number of foreign remittances flowing into non-oil MENA states as a sign of economic weakness and dependency. Viewed another way, they could be a powerful force pulling members of these countries out of poverty. For example, one of the reasons Yemen's economy is said to be so backward is because huge numbers of its nationals were expelled from Saudi Arabia in the early 90s when President Saleh backed Saddam Hussein's invasion of Kuwait. Those workers were forced to go home, the remittances stopped flowing in, and the economy fizzled and crashed.

I don't think there's an obvious way to come down on this issue. There may be some middle ground, though. Remittances are clearly important for many individuals in the developing world and encouraging labor mobility is certainly a defensible policy. But the UAE and other Gulf countries are wrong to take advantage of their foreign workforce. Their governments should appreciate how much of their economies are dependent on these laborers, and accord them the appropriate level of social and political rights. There is, after all, no law of economics that says remittance payments have to flow from the exploited.