Tajikistan labour migration and its implications

Tajikistan labour migration and its implications Introduction Background Labour migration and remittances are one of the most evident globalisation phenomena in Tajikistan. According to UNDP Human Development Report (2005) and World Bank (2008) from 600,000 to 1,500,000 Tajik citizens migrated overseas for work in 2005 and remittances being sent by them constitute staggering 36% of national GDP of Tajikistan. Remittances are proven to be large source of external finance stimulating consumption which in turn has a very positive effect on economy, especially on services sector. According to World Bank (2005) remittances are considered as the second biggest source of development finance after foreign direct investment. While remittances serve as an important social stabilising factor, they can also act as means of internal investment and boosting in this manner local development. My analysis will focus on the role of remittance savings either in leveraging to borrow from banking systems to invest in activities such as small businesses, or in directly financing them, which as the result improve the economic welfare of migrant households in both rural and urban areas. This dissertation will be based on analysis of data sources coming from various researches conducted by international organisations and research centres about Tajikistan labour migration and its implications. I will also examine the dynamic strategic aspects of interaction between the migrant and the remittance-receiving relatives and asses the benefits of particular types of motives under remitting. Furthermore, I would like to model hypothetical usage of savings out of remittances to business opportunities and asses the implications. The Republic of Tajikistan Tajikistan is the smallest country in the Central Asia and situated in south-east part of that region. 93% of Tajikistan consists of mountains, and more than half of the country lies on an altitude higher than 3000 meters above sea level. This leaves the countrys population of approximately 7 million people to reside and produce mainly in the remaining 6.52% of arable land, struggling with landslides, earth quakes, mudslides and unreliable access to clean water.. What is more, the countrys mountainous areas not only challenging for agriculture, but also contributing to a regionalisation and division of the country as the mountain ranges separate east from west, and north from south. These regional complications became particularly pertinent during the 1992-97 Civil War where, according to the International Crisis Group (ICG), between 60,000 and 100,000 people died, approximately 600,000 were internally displaced and 80,000 left the country, including a significant amount of the Slav population. The ICG estimates the cost of the war to U.S. $7 billion, and in this way significantly slowing the countrys modest attempts for post-Soviet recovery. After the dissolution of the Soviet Union and the devastating Civil War, the country has experienced a significant decline in living standards through a rise in unemployment and poverty, and a deterioration of infrastructure, health care and education. Furthermore, the country lost its previously established export markets, sources of supplies and subsidies from Moscow (accounted to almost 40 percent of government revenue) (European Observatory on Health Care Systems, 2000). According to Trade and Investment Division (2001), â€Å"Between 1991 and 1997, the level of GDP diminished by more than 60 percent which significantly reduced the living standards of the less protected part of the population.† (p. 252). All these above mentioned factors urged Tajikistan to accumulate foreign debt, which reached $880 million US dollar by 1998. It is worth state that Tajikistan has comparative advantage in growing of cotton, which is considered as cash crop and main source of foreign exchange (World Bank Poverty Assessment Tajikistan Update). Namely the export of cotton coupled with aluminum helped the country to restore external balance. Although cotton is strategically important, the growing of that crop entails difficulties with extensive irrigation and profitability nowadays. FAO (2008) claimed cotton growers in Tajikistan were indebted about 100 million US dollars due to dramatic drop in prices for raw cotton in 2000. All these difficult situations have encouraged considerable labour emigration and a return to a more patriarchal society based on religious beliefs and old traditions as survival strategy when the traditional mans role as the main bread winner of the family is being challenged. Poverty and Migration Tajikistan was the poorest among the Soviet Union republics and nowadays, it remains the poorest country in Europe and Central Asia region. According to World Bank Poverty Assessment Tajikistan Update, Tajikistans mean per capita income by 1989 was less than half of that in Russia. Its national income per capita was less than 200 US dollars. After gaining of independence, figures were even deplorable; 81 percent of population lived under poverty line in 1999 (less than 2.15 US dollars per day at purchasing power parity). (Source TLSS 2003 and TLSS 2009). The unofficial unemployment rate was around 30%. After the end of civil war and some years of stability and peace Tajikistan experienced substantial improvements in poverty rates, which dropped to 64 percent in 2003. However, still, this is the highest rate of poverty when compared to that of poor countries in Commonwealth of Independent States, like Kyrgyzstan (54 percent in 2001) and Moldova (45 percent in 2002). (Source: Poverty A ssessments for respective countries.) Poverty rates in rural areas are higher than in urban areas. In 2003, the proportion of poor people was 65 percent in rural areas against 59 percent in urban. (World Bank Poverty Assessment Update). Provided that 73 percent of the population of Tajikistan lives in rural areas the poverty can be considered overwhelmingly rural. (World Bank Poverty Assessment Update). Given that Tajikistan has the youngest population structure of the former Soviet countries with 70 percent aged under 30, poverty is overwhelmingly among young and economically active part of the population. Lack of income means lack of opportunities: not only loss of access to food, health care and education, but also the loss of the ability to choose and control ones own life. Poverty destroys human capital and has an adverse impact on social relations, leading to violence and instability. (Saodat Olimova) Furthermore, in 2007, Tajikistan experienced the hard consequences of strong rise in international food and fuel prices; especially it is felt by people of Tajikistan. While the impact of the higher fuel and food prices and misguided market interventions of the government have been felt by everyone, many households in rural and mountainous areas seemingly are on the verge of destitution. While many vegetable prices have increased between 20-30% in the last 11 months, wheat flour has increased 81-131%, and cooking oils from 118-139%. All the while, real wages for unskilled laborers (which are too low to cover household costs to begin with) have increased by a mere of 20% (by 6% in KT). In short, wages are not keeping pace with the dramatic increases in food and fuel prices. Traditional lepeshka now cost 1 somoni of the 44.61 somoni an average teacher or nurse earns a month. Clearly, people have to find ways to survive and migration seems the only plausible way to do so. Thus, it is hard to improve ones living conditions in Tajikistan, and many find themselves forced to seek employment abroad. Furthermore comparatively improved economies of Russian Federation and other CIS countries create an appropriate environment for migration from Tajikistan. According to a year 2006 International Organization for Migration (IOM) survey on trafficking from Tajikistan, 96.9% of the approximately 1 million migrants from Tajikistan go to Russia in search of work. 1.4% of the migrants work in Kyrgyzstan, 0.7% in Kazakhstan, and another 0.7% in Ukraine. Also, according to an IOM report conducted amongst 2000 migrants in 2002, with follow-up amongst 4000 migrants in 2003, these migrants were 85% men and 15% women in 2002. Amongst men, the age groups 18-29, 30-39 and 40-49 all make up approximately one third of the migrant mass each. Olimova and Bosc divide these age groups into two, corresponding to the traditional life cycle in Tajikistan: â€Å"sons† of 18-29 years, and â€Å"fathers† of 40-49 years. The first group migrates mainly to make money to establish his own family, whereas the second group goes abroad to be able to feed his family and organize the traditional ceremonies for his children. In average, 68.5% of the migrant s are married, and 22.6% live together as in marriage in Tajikistan, but without official registration. The last group consists mainly of youth between 15 and 19 years of age. Theoretical Background GREGORIAN, D. MELKONYAN, T. (January 2008) Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest, IMF Working Paper, WP/08/19. This publication illustrates the dynamic strategic aspects of interaction between the migrant and remittance receiving relatives and shows the various microeconomic implications under each particular circumstance of interaction. Gregorian and Melkonyan analyse the plethora of motives for remit in terms of altruistic and self interest behavior of the remitter. In addition, they consider the scenario where two parties could work out self-enforcing contracts to implement choices that maximise their total surplus. They also discuss both the migration and the remittance patterns in Armenia with a particular focus on push and pull factors. The main part of the paper contended an empirical estimation of the microeconomic impact of migration and remittance in Armenia on hours supplied to the market, education spending, savings and borrowing behaviour from commercial banks. In the words of Gregorian and Melkonyan, â€Å"this evidence [of the paper] suggests that the benefits of remittances might be overstated and emphasises the importance of measuring their impact in a general rather than a partial equilibrium context†. In conclusion, the authors suggest that there is a need for either direct or indirect policy measures in shaping the remittance flows and their impact on the behaviour of remittance receiving households. This article inspired me to deepen my research of the dissertation topic in terms of analysis of not only the quantitative pattern of remittances but also the behavioral aspects of this phenomenon. That is, whether the remitter has altruistic or self-interest motives while sending money back home and what the possible outcomes are under each circumstance. I will also consider models and regression methods used in the paper to estimate possible impacts of remittance on labour supply, education spending and saving/borrowing behaviour in Tajikistan. Furthermore, the above paper put forward a vague, but at the same time, ambitious notion of potential policy measures that should be taken in order to promote remittance saving for the creation of small business and entrepreneurial activities in households, which I believe will be a crucial part of my dissertation. GIULIANO, P. RUIZ-ARRANZ, M. (March 2006) Remittances, Financial Development, and Growth, Journal of Development Economics, doi: 10.1016/j.jdeveco.2008.10.005 This paper examines the relationship between remittances and growth, and in particular the influence of local financial sector development on a countrys capacity to take advantage of remittances. Giuliano and Ruiz-Arranz underline the importance of remittances in promoting economic growth whilst looking specifically at the interaction between remittances and the financial sector. This publication is considered to be the first paper to provide evidence for both complementarity and substitutability between remittances and financial development in promoting economic growth. The authors make use of newly constructed data for remittances covering 100 developing countries and illustrate that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping to overcome liquidity constraint. They also suggest that there could be an investment channel through which remittances could promote growth especially when the financial sector does not meet the credit needs of the population, where remittances act as a substitute for financial services. I plan to make substantial use of the concept of interaction between remittances and the financial sector in growth in my dissertation, as the issue of leveraging and borrowing from banking systems by remittance-receiving households is central to my dissertation topic. In particular, I want to look at the possibility of commercial banks opening lines of credit for remittance-receiving households, based on the earning of the migrant. Additionally, I will consider this papers analysis of cyclical properties of remittances to assess whether they are procyclical and predominantly profit-driven or countercyclical. Accordingly, I aim to analyse the relationship of Tajikistan GDP and capital flows and see if they are correlated. PALEI, L.V. KOROBKOV, A.V. (2007) Migrant Remittances in the CIS: The Financial and the Socio-Economic Impact, Paper presented at the International Studies Association 48th annual meeting, Chicago, IL. This paper studies the current labour migration trends in the countries of the CIS and analyses the role of remittances as a means of socio-economic stabilisation in labour migrant source countries. It also provides the core causes of migration and its aspects in the context of a globalising world. Moreover, the authors examine how remittances could play an important role in the development of the country and what policies governments should adopt in order to better utilise the development potential of remittances. The paper is valuable as a source of background information on the causes and nature of migration processes in countries of the CIS. It also provides figures on the total number of migrants and remittances sent by them. Moreover, the authors identify remittances as one of the major stabilising factors of an economy and justify this by presenting statistics on remittances as a percentage of national GDPs. The important thing about this paper was that it focused very much on Tajikistan as one the major labour migration source countries. UNDP (2005) Central Asia Human Development Report, UNDP Regional Bureau for Europe and the Commonwealth of Independent States. This report studies the level of human development in Central Asian Republics. Throughout the report, the importance of increased regional cooperation in economic and other spheres of activities is repeatedly underlined. While mentioning some of the significant vulnerabilities of the region as being, for example, largely landlocked- the report also highlights the newly emerging opportunities availability of natural resource and being surrounded by fast developing countries. In conclusion, the report stresses the necessity to continue the process of reform in different sectors of economy. This report is a good source of so called country â€Å"baseline data†. It provided statistics on economic, demographic, social, and environmental aspects of a countrys development. Additionally, it looks specifically at the issue of labour migration and its economic, social, and cultural aspect. Being prepared by UNDP an organization, particularly active in Tajikistan- the report gains additional reliability and accuracy. AMUEDO-DORANTES, C. (2006) Remittances and Their Microeconomic Impacts: Evidence from Latin America, Journal of Proceedings, Federal Reserve Bank of Dallas, 187-197. Amuedo-Dorantes provides an overview of the remitting patterns of migrants, from Costa Rica, Dominican Republic, Haiti, Mexico, Nicaragua and Peru, working and residing in the United States. She summarizes the microeconomic impacts of remittances, particularly on spheres of employment, business ownership, education and health care investments. Furthermore she emphasises the importance of remittances as a resource for the accumulation of human capital investments in education and health and as a determinant of employment patterns in remittance-receiving households in developing economies. This publication gave me the idea concerning the appropriate categorisation of purposes of remitting into two broad groups; consumption, which consists of food/maintenance, purchase of a vehicle, recreation/entertainment expenses and debt payment; and asset accumulation/investment, which consists of construction, repair or purchase of a house, purchase of tools, livestock, agriculture inputs, start/expand of business, education and health expenses and savings. BORJAS, G.L. (1999) The Economic Analysis of Immigration, in the Handbook of Labor Economics, Vol 3a, 1698-1757. This particular paper investigates labour market affects of immigration in both the host and home country. Borjas emphasises the measuring of relative skills of immigrants and evaluation of implications of relative skill differentials on economic outcomes. The author focuses on different environments and premises where the human capital of the source country influences the labour market of the host country. That is, an analysis of the factors that determine the skills of immigrants; a discussion of the implications of the income-maximization hypothesis for the skill composition of the self-selected immigrant flow, an estimation of how the skills of immigrants compare to those of natives -both at the time of entry and over time as immigrants adapt to the host countrys labor market, an examination of the concept of economic adaptation with analysis of the relationship nature of an immigrants â€Å"pre-existing† skills and the skills that the immigrant acquires in the host countr y, and finally, an evalution of the impact of immigration on the wage structure in the host country. This paper provides an important and basic understanding of the affect that immigration has on the economy of a host country. I will use the models and generalisations found in Borjas paper to analyse the migration pattern between Tajikistan and the Russian Federation. Furthermore I will use them for policy recommendation and measures in my dissertation. LEE-NAH, H. (2007) Outcome evaluation of HIV program in Tajikistan, Final report, Retrieved July 12, 2008 from http://www.undp.tj/files/ev/ev_report.pdf. The evaluation study outlined in the report was commissioned by UNDP, Tajikistan and is aimed at assessing the impact of two HIV related programs which were implemented in the country. These programs dealt with working on HIV prevention and mitigation in the following target groups: labour migrants and their families, prisoners, habitual drug users, sex workers, school youth, etc. The evaluation methods used included the thorough review of relevant documents and statistics, interviews, and site visits. The report provided an in depth analysis of the current situation with AIDS/HIV in Tajikistan and an indication of the success rate of the implemented programs, concluding with a set of recommendations on different levels of intervention and target groups. The report presented a very good source as a synthesized analysis of different documents and statistics available on HIV in Tajikistan. Specifically, it provided statistical data on the overall official number of people infected in the population (while also citing unofficial estimates), prevalence figures, and broke down the infected persons into different groups (including labour migrants). It also outlined the efforts which are being made to prevent the proliferation of HIV among labour migrants and recommendations to improve this process. The report, however, did not specifically feature any future projections of HIV infection spreading due to increasing number of labour migrants and their exposure to countries with much higher prevalence figures than those in Tajikistan. Remittances and Financial Sector in Tajikistan â€Å"Migration from Tajikistan and the consequent remittances have been unprecedented in their magnitude and economic impact.† IMF, Alexei Kiriyev, page 4-5 The measuring of remittances magnitude is still not definite: