WASHINGTON — The Inter-American Dialogue, a think-tank devoted to Latin American policy issues, released a report analyzing trends in remittances to Latin America and the Caribbean with data from 2014.
Remittances are the money that migrant workers earn and send back to family members in other countries. For Latin American and Caribbean nations, the total amount of remittances in 2014 was estimated at $62 billion, growing by nearly four percent from 2013.
The remittances are highly heterogeneous for the region. For example, every South American country except for Ecuador and Uruguay — who saw only modest gains — experienced declining remittances. In contrast, with the exception of Costa Rica, every Central American country and Mexico benefitted from increased remittances.
The case of Panama and Brazil illustrate just how uneven the flows were, with remittances to Panama growing by over 61 percent and Brazilian remittances shrinking by more than 33 percent since 2013.
What has been driving these shifts?
Many factors have been shaping the remittance landscape. First, US economic growth and a recovering labor market have led to increased incomes and therefore more money being sent home. In fact, countries with a high proportion of migrant workers in the US have experienced higher remittance growth.
A second factor has been the changing migration patterns. Many of the Central American nations and Mexico that received more money from family in the United States have been the same countries with increased migration to the US. Guatemalan migrants increased by five percent while remittances sent to Guatemala grew by nine percent. The conclusion is simple, more workers, more remittances.
The third reason for the growth in remittances has been the methods for sending the money. Advances in technology, especially through mobile phones, has been opening the tap for increased flows. The number of people using the internet to send money tripled between 2010 and 2013, from four to 12 percent of immigrants.
The ease of sending money using technology has been the primary driver for the seven percent growth in the number of times per year that money is sent back home.
Most remittance money is used to buy basic goods like food and shelter. The money is also used for education and healthcare. Development practitioners looking to increase the impact of remittances are focusing on financial services and banking.
Better financial services would not only decrease the transaction costs of sending money home but would incentivize saving. These new savings would be an important asset for many in the region and would add a sense of security to a region with globally low rates of savings.
In Guatemala, Nicaragua and El Salvador only 15 percent of the population have savings they can rely on. In Honduras, only nine percent do. These numbers contrast to 47 percent of Canadians and 40 percent of people living in the US that would be able to rely on their savings.
A better ability to save and invest would be a boost to the overall financial climate in the region and ease access to credit.
The growth in remittances is not only an indicator of a healthier US economy and a boon to the disposable incomes of those living in the poorer Central American nations, it can be a signal that now is the right time to invest in financial services in the region.
More money flowing into these countries may be a catalyst for more and better banking services which will help build prosperity.
– John Wachter