Global Money Transfer Monthly

Latin America and the Caribbean – the biggest remittance receiving region among developing countries

Latin America and the Caribbean is the largest remittance receiving region among the developing countries with an estimated inflow of more than USD60.0 billion (Source: World Bank) as of 2007. The region is home to about 28.3 million migrants that comprised 5.1% of its population at the end of 2005 (source: The Inter-American Development Bank, World Bank). The top ten emigration countries in the region are Mexico, Colombia, Cuba, Brazil, El Salvador, Dominican Republic, Jamaica, Ecuador, Peru and Haiti, while Mexico-United States, is the largest migration corridor globally. Foreign remittances contribute significantly to the GDP and growth of the Latin America and Caribbean economies; eg the total remittances received by Honduras in 2006, a modest USD2.36 billion, represented about 26% of the size of its economy.

The flow of remittances to the Latin American and Caribbean nations, particularly Mexico and Brazil, suffered a drastic fall in 2007 and early 2008 following the slowdown in the US. In 1Q 2008, total remittances received by Mexico — the region's largest remittance country — fell nearly 0.1% as compared to the previous quarter. For Brazil, the second largest recipient of remittance sin the western hemisphere, funds coming from its citizens abroad dipped 4% to USD7.1 billion in 2007. The rising home currency of remittance receiving countries also contributed to this trend.

Flow of remittances to Latin America and the Caribbean
High Growth in remittances over the years:

The flow of remittances to Latin America and the Caribbean has increased significantly over the years and contributed the most to the growth in remittances received by the developing countries.

Table 1: Remittance flow to the Latin America and the Caribbean (LAC)

(USD billion)	1995	2000	2001	2002	2003	2004	2005	2006	2007
Inward remittance flows (LAC)	13.3	20.0	24.2	27.9	34.8	41.3	48.6	56.5*	60.0
All developing countries	57.5	84.5	95.6	115.9	143.6	161.3	191.2	221.3	239.7
Outward remittance flows (LAC)	1.1	2.0	2.4	1.9	1.8	2.0	2.3	2.6**
All developing countries	12.4	11.5	13.6	20.4	23.8	30.9	36.0	44.2

Source: World Bank
* 1.9% of GDP in 2006
** 0.1% of GDP in 2006
This table reports officially recorded remittances. The total size of remittances, including unrecorded flows through formal and informal channels, is believed to be larger.

Mexico - the largest remittance country in LAC:

With a total inflow of USD25.0 billion, Mexico topped the list of remittance countries in the region in 2007. The other major recipients were Colombia (USD4.6 billion), Brazil (USD4.5 billion), Guatemala (USD4.1 billion), El Salvador (USD3.6 billion), Dominican Republic (USD3.2 billion), Ecuador (USD3.2 billion), Honduras (USD2.6 billion), Jamaica (USD2.0 billion) and Peru (USD2.0 billion).

Significant contribution of remittances to the growth of LAC countries:

The flow of remittances is contributing significantly to the development of the Latin American and Caribbean economies. In 2006, remittances comprised about 1.9% of the GDP of these countries and 77% of the foreign direct investment in the region. Higher remittances led to higher savings, better access to health and education, increased macroeconomic stability, growth of entrepreneurship, and reduction in poverty and social inequality.

In 2006, Honduras topped the list in terms of the contribution of remittances to GDP (25.6%). It was followed by Guyana (24.3%), Haiti (21.6%), Jamaica (18.5%), El Salvador (18.2%), Nicaragua (12.2%), Guatemala (10.3%), Dominican Republic (10.0%), Ecuador (7.2%) and Bolivia (5.5%).

Table 2: Latin America and Caribbean immigrants

US	Canada	Japan	Europe
Caribbean	2,953,066	294,055	60,000 Dominicans in Spain
Central America	2,026,150	71,865
South America	1,930,271	300,000	350,000 (Brazil and Peru)	400,000 Ecuadorians in Spain; 100,000 Ecuadorians and Peruvians in Italy
Mexico	9,177,487	36,225
Latin America & Caribbean	16,086,974	702,145	350,000	2,000,000

Source: US Census Bureau; Canada Statistics, Canada Statistics 2001 Census, IOM

US - the largest immigrant receiving country for LAC migrants:

The US is the most attractive destination for immigrants coming from the Latin American and Caribbean countries. The number of immigrants from these countries has increased substantially over the years. With a total size of more than 11.5 million, Mexicans formed the largest group of immigrants in 2006.

Growth Drivers
Global isat ion of Economies:

With increased globalisation of economies, job opportunities for migrants have increased substantially in the recent years. Industries and companies in the developed countries are hiring skilled but cheap migrant workers to cut down their employee costs. Lack of job opportunities in several Latin American countries and the attraction of settling down in the US have also attracted a large number of immigrants to the country over the years.

Ageing population in some major economies:

The size of the working population in some major economies such as the US, the UK and other developed nations of Western Europe has decreased significantly over the years. According to the US Census Bureau, the ratio of working age population (25-64 years) to retired population (above 65 years) is expected to fall from 4.4:1 in 2002 to 2.7:1 in 2025. In order to maintain the same ratio in 2025 as in 2002, the US would need 110 million more people in the age group of 25-64 years.

Table 3: Cost to send USD200 to selected Latin American and Caribbean countries

	2001	2002	2003	2004.01	2004.11	2005.12
Ecuador	0.00%	5.70%	5.10%	5.40%	4.40%	3.90%
Peru	0.00%	0.00%	6.20%	5.50%	6.10%	4.60%
Colombia	10.10%	8.70%	6.00%	6.50%	5.90%	5.00%
Nicaragua	7.50%	7.50%	7.00%	6.90%	6.70%	5.20%
Venezuela	0.00%	0.00%	7.40%	8.60%	6.50%	5.20%
El Salvador	6.70%	6.20%	5.80%	5.70%	5.00%	5.20%
Guatemala	7.40%	7.30%	7.80%	7.10%	6.30%	5.60%
Bolivia	0.00%	0.00%	10.10%	8.20%	6.70%	5.60%
LAC with out Cuba	8.60%	7.80%	7.70%	7.40%	6.40%	5.60%
Honduras	0.00%	6.90%	6.90%	7.20%	6.20%	5.80%
Mexico	8.80%	9.30%	7.50%	7.50%	6.20%	6.00%
LAC	9.00%	8.60%	8.20%	8.30%	7.10%	6.30%
Dominican Rep.	9.40%	8.40%	7.20%	8.80%	7.10%	6.40%
Haiti	9.00%	8.10%	10.40%	8.90%	7.90%	6.70%
Jamaica	9.80%	10.00%	12.70%	10.20%	8.80%	8.20%
Cuba	13.00%	12.90%	12.40%	12.10%	12.40%	12.00%

Source: Multilateral Investment Fund, the Inter-American Development Bank (IADB)

The decreasing trend of the US working population has been one of the major driving forces for a large number of immigrants over the years. The percentage of US working population has decreased to 66.0% in 2007 from 66.2% in 2006, while the percentage of its native working population decreased to 65.6% in 2007 from 65.8% in 2006. The gap in the working population is being filled by overseas workers and this trend is expected to continue.

In the UK, the size of the population aged over 65 years grew by 31% to 9.7 million in 2006 from 7.4 million in 1971, while the population aged under 16 years declined by 19% to 11.5 million in 2006 from 14.2 million in 1971. At the end of 2006, about 16% of the total UK population was aged more than 65 years.

Fall in transaction cost due to technological advancement:

The average remittance cost has declined considerably in recent years due to the advent of new technologies and new players in the money transfer business. The remittance cost for all the LAC countries has decreased over the years.

The average remittance cost in the US-Mexico corridor, the largest remittance corridors, fell dramatically by nearly 55% between 1999 and 2004. Although the remittance market has witnessed a significant reduction in transaction cost, there exists vast scope to reduce it further through greater participation of banks and other financial institutions and introduction of more favourable laws in remittance receiving countries.

Recent trends
Slow down in US economy

The growth of the US economy has slowed down significantly in the last one year. The annual GDP growth has dropped to 2.2% in 2007 from 3.6% in 2004, and is expected to fall sharply to 1.3% in 2008, according to IMF estimates.

The US housing sector has been hit badly from the ongoing mortgage crisis. Existing home sales fell 12.8% to 5,652,000 in 2007 from 6,478,000 in 2006, while total value of residential construction fell 17% to USD 473 billion in 2007 from USD 570 billion in 2006. The crisis in the US housing sector has impacted the migrants significantly, as it has reduced job opportunities. About 40% of Mexican-born men were employed in construction, extraction or transportation sectors in the US; hence, the impact of housing slowdown is more prominent on Mexican immigrants. The recovery in the housing sector is not expected in the near term amid the overall negative sentiment prevailing in the economy.

Table 4: Trend in US Housing Sector

	2006	2007	2008e	2009e
Existing home sales*	6,478	5652	5385	5,742
Existing home sales (% change-Year Ago)	-8.50%	-12.80%	-4.70%	6.60%
Residential construction**	570	473	379	369
Residential construction (% change-Year Ago)	-4.60%	-17.00%	-19.80%	-2.80%
Existing home prices (in USD, 000)	221.9	218.9	215.8	223.8
Existing home prices (% change-Year Ago)	1.00%	-1.40%	-1.40%	3.70%

Source: National Association of Realtors
* Existing home sales of single-family homes and condo/coops; ** billion dollars

Decrease in flow of remittance to LAC

The Central American and Car ibbean region exper ienced moderate to slow year-over-year growth in remittances during the first quarter this year. Guatemalans sent home USD973.4 million, an increase of 9.8% compared to 11.9% growth posted in 1Q 2007. Remittances to El Salvador (USD912.2 million) increased by 6% compared to 7.9% year-over-year growth achieved last year. In Honduras, remittances grew 12.2% in 2007 but only 6.9% in 2008, totaling USD626.6 million. The largest fall in growth was seen in the Dominican Republic, where remittances rose 17.2% in 2007 but only 5.6% in 1Q 2008.

Flow of remittances to Mexico fell by 2.9% to USD5.35 billion in 1Q 2008. Remittances received by the country totaled USD23.98 billion in 2007, only 1% annual increase compared to 17.1% growth in 2006. The slowdown in the construction industry (where 22% of Mexican workers are employed), the increased difficulties in migrating to the United States and finding jobs for undocumented workers in the face of increased law enforcement were the reasons behind such a huge drop in remittance flow.

Table 5: Remittances Quarterly Growth in LAC countries 1Q 2006—1Q 2008 (in %)

	2006				2007				2008
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q
Mexico	29.10%	21.40%	12.90%	7.70%	3.00%	1.20%	2.70%	–0.2%	–0.3%
El Salvador	24.60%	16.40%	12.10%	9.20%	7.90%	7.10%	8.00%	3.10%	6.10%
Guatemala	20.20%	21.20%	27.40%	14.40%	11.90%	13.30%	17.30%	14.70%	9.80%
Honduras	38.60%	41.90%	26.80%	20.90%	12.00%	9.00%	12.40%	6.90%	6.90%
Nicaragua	13.00%	13.20%	18.70%	8.70%	4.90%	7.70%	6.40%	14.80%	15.40%
Colombia	17.10%	26.90%	14.30%	12.30%	11.00%	2.00%	23.20%	29.10%	19.90%
Ecuador	9.40%	17.20%	23.30%	26.80%	3.50%	8.50%	6.90%	3.00%	12.30%
Jamaica	3.60%	7.60%	7.40%	9.90%	7.80%	10.00%	11.80%	13.90%	11.90%
Dominican Republic	10.60%	18.60%	17.60%	5.60%	17.20%	10.70%	7.20%	8.80%	5.60%
	18.50%	20.50%	17.80%	12.80%	8.80%	7.70%	10.70%	11.80%	11.00%

Source: Central Banks of each country

Shift of migrants to countries, other than US increase of Remittances from Spain in 2007

Spainis becoming an alternative destination for the migrants from Latin America and Caribbean countries amidst a slowdown in the US and rise in the cost of living in their home countries. According to Spain's Central Bank, about 4.5 million migrants living in Spain — which represents 10% of Spain's population — sent close to USD13 billion in remittances to their home countries in 2007, 19.5% higher than in 2006. About 36% of all foreign nationals residing in Spain come from Latin America. The Colombians , Ecuador ians , and Bolivians remit the largest amounts of money (23%, 20.2%, and 11% of the total amount remitted, respectively) while Moroccans and Romanians lag behind (each group sending around 6% of the total).

Outlook

The growth of remittances for the Latin American and Caribbean countries would largely depend on the recovery of the US economy in the short-to-medium term. The slowdown in the construction sector would continue to impact the semi skilled migrants, mostly coming from Mexico. However, the opportunity for skilled labour is expected to remain good amidst cost cutting by major players who would continue to hire at cheaper rates. Increased opportunities in the European countries such as Spain and Italy amidst the strengthening of Euro would attract more immigrants to those countries from LAC. According to the Inter-American Development Bank's Multilateral Investment Fund (MIF), remittances to Latin America and the Caribbean would continue to grow in coming years and surpass USD100 billion a year by 2010.