Certain countries are at a higher risk of social and political instability because of declining remittances from their workers abroad. Some of these countries will endure the lack of income amid a global financial crisis with a minimum of disruption while others could experience significant turmoil. It depends, in large part, on available jobs for returning workers and the strong arm of government.
Editor's Note: This is the second in a two-part series on countries that depend on monetary remittances from their emigrant workers, who are hard-pressed to send money home given the current economic crisis. Countries with the highest risk of suffering serious social and political destabilization are those whose economies not only depend heavily on remittances, but also are not big enough to absorb an influx of emigrant labor returning home and whose security apparatuses are ineffective even in the best of times. With many of these countries already reeling from credit shortages and the global economic slowdown, the last thing they need is a sudden explosion of unrest in the poorest and most transient pockets of society.
No Critical Change
Some countries are already in such dire straits that the ramifications of the global recession will do little to change social conditions or national behavior. STRATFOR would put the following countries in that category:
With 13 percent of gross domestic product (GDP), or about US$8 billion, worth of remittances, Bangladesh could see an 8 percent slowdown in remittance growth, according to the World Bank. It could also be facing serious troubles as workers are sent home from halted construction projects in the Middle East, where about 60 percent of its remittances originate. Bangladesh is a poverty-stricken, riot-prone and densely populated country with 144 million people. A sudden cutoff of remittances and return of emigrants (which number as many as 4.8 million) will not substantially alter its already desperate circumstances.
Nigeria experienced some of the most rapid growth in remittance flows in recent years, only to feel a dramatic slowdown in 2008. Abuja's finances are in terrible shape because of low oil prices and militant attacks on oil production sites. Nigeria is a wretched place, torn by militant violence, ensnared in crony politics and cursed by oil reserves. The loss of remittances will hardly have a perceptible effect outside its borders.
Morocco takes in an equivalent of 11 percent of its GDP from cash sent home by 2.7 million Moroccan workers abroad, mostly in France, Spain and other European countries. Although Moroccan emigrants living in Europe are likely to remain in Europe and continue sending remittances, the country is heavily dependent on remittance flows, which are shrinking. Nevertheless, social instability resulting from declining remittances is not likely to happen. Surrounded by desert, Morocco is relatively isolated and its monarchy maintains a steady grip on the helm. Though the unemployed could be tempted to join radical Islamist militant groups, these groups are not particularly adept in Morocco and security forces have kept tight control over the country's internal situation.
Tajikistan and Kyrgyzstan
Both of these countries are excessively dependent on remittances (37 percent and 31 percent of GDP respectively), having been exporting labor in droves to Russia since 2001, and they have already felt the initial shocks of that money drying up. Tajikistan's economy minister has reported that remittances worth 20 percent of the country's GDP disappeared from September to November 2008. Both countries' expatriate workers have been employed in Russia (and Kazakhstan), and many are likely to return home because of stricter immigrant controls and anti-immigrant attitudes as well as the global financial crisis.
Tajikistan, in particular, is one of the most dangerously exposed countries to shortfalls in remittances. Some say remittances count for up to half of its GDP (as opposed to the official 37 percent), while roughly 30 percent of working males (a total of about 1 million) are living abroad. Kyrgyzstan is much the same. While formal statistics suggest that only 170,000 Kyrgyz laborers work abroad, the actual number is closer to 1 million, or about 20 percent of the country's population of 5 million. Kyrgyz workers have yet to begin returning home, but they are likely to do so because of massive layoffs at Russian construction sites and a rising problem of unpaid wages. While both Tajikistan and Kyrgyzstan are highly vulnerable to remittance shortfalls, they are already beyond repair, and no significant social unrest or challenges to political rule will arise in either country because of the worsening financial situation.
Kazakhstan is less dependent on remittances, which make up 6.5 percent of its GDP. With 25 percent of its population (about 3.7 million) working abroad, mostly in Russia and Ukraine, Kazakhstan could see a return of many emigrants, but Kazakhstan workers are still needed in Russia, and when they are not, Kazakhstan has its own mineral extraction industries that could help absorb an influx of labor despite the severity of the economic downturn. The state also has a strong arm that will not allow social frustrations to spiral out of control.
Taking in remittances amounting to 12.5 percent of GDP, the Philippines is well known for its 3.6 million emigrant workers. Manila has deliberately exported labor as a matter of policy for some time through the Philippine Overseas Employment Administration, which has enabled many Filipino emigrants to obtain jobs that are more resilient to cyclical downturns. For instance, Filipino women often work as nurses in Japan, where the aging population has created a demand for health care that will last for some time. The Philippines also exemplifies some of the reasons remittance flows have grown in previous years. The country's central bank has sought to facilitate transfers from agencies other than banks that can handle remittances, such as telecommunications firms that provide wireless transfers. Filipino workers in the United States and the United Kingdom are more likely than their fellow emigrants in the Middle East to retain their jobs or eke out a living and send money home. Filipinos who return jobless could contribute to an increase in organized crime, but the primary concern for the Philippines in terms of declining remittances is simply the loss of cash.
Potential Critical Change
STRATFOR is watching the following countries more closely because of a high risk of financial pain and of social instability that cannot be controlled by state security forces and could effect a substantive change in the country's political and economic system:
Egypt receives approximately $4 billion in remittances, or 3.4 percent of GDP, from 2.4 million workers abroad. The secular regime, led by the aging President Hosni Mubarak, is facing threats from the Islamist opposition Muslim Brotherhood movement, which is growing bolder amid the economic slowdown and in light of Israel's offensive in Gaza. Increased strain on the economy will increase the ranks of the unemployed and could drive more recruits into the arms of the Muslim Brotherhood or the largely defunct jihadist groups that still have a presence in the country while the government continues vacillating between mismanagement and security crackdowns. With a population of 75 million, Egypt is a key Arab nation that periodically becomes a regional power. An already bleak domestic economy, pushed closer to the edge by falling remittances, could ignite dangerous fires in the streets and lead to pressure on the long-standing Mubarak regime.
Turkey receives around $7 billion, or 2 percent of GDP, in remittances. About 4.4 million, or 6 percent of its 73 million citizens, work abroad. Financially, Ankara is better off than it has been since the 1980s, but the trade balance is deeply in the red (as exports to Europe flag) and there is talk of a loan from the International Monetary Fund (IMF). At a time when the country seeks to play a greater role on the international scene, domestic troubles arising from the economy will be an unwanted distraction. More importantly, Turkey is paranoid about the Kurdish minority in its southeast, which makes up about 20 percent of the country's population. Ankara does not want to see a wave of Kurdish workers return to the country, which could add to the number of displaced Kurds and contribute to separatist movements.
Armenia takes in a full 18.5 percent of its GDP, or $1.2 billion, from over 800,000 Armenians (27 percent of the population) working abroad. In November 2008, the Central Bank of Armenia reported that remittance flows had fallen 7 percent year-on-year (subsequent numbers have yet to be released). Yerevan is hugely dependent on cash from the large Armenian diaspora, mainly in the United States and Russia. This cash comes in two forms: foreign direct investment (FDI) and remittances. In 2007, FDI topped $600 million, about half coming from Russia and Lebanon (the United States and Argentina also contribute to FDI in Armenia). Whether this FDI keeps flowing will depend on perceptions of Armenia's needs and on economic conditions affecting investors, but investment slowed dramatically during the recession in 2001. Remittances, most of which are from workers in Russia, could shrink dramatically and cause workers to come home.
Armenia is therefore facing serious losses of both FDI and remittances, which could be crippling when stacked on top of the government's other pressing financial challenges. With less foreign aid and surrounded by countries that block its access to the outside world, Armenia will be left with few options and will become even more dependent on Russia.
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About 23 percent of the total Georgian population of 4 million work out of the country, primarily in Russia and Ukraine, and remittances amount to 20 percent of GDP, or about $1.5 billion. This is a serious vulnerability as Tbilisi struggles to pull itself back together after the war with Russia in August 2008 and as Russia continues to press its claims in the country's breakaway enclaves and in the Caucasus as a whole. For Georgia, the remittance issue is politicized. Most of Georgia's capital inflows come from Georgians working in Russia, which has been sending Georgians home for years and continues to deny work permits, leaving them (and the country) with few other options.
Estonia's and Latvia's incoming remittances amount to 2.3 percent of GDP, while Lithuania receives remittances worth 1.6 percent of GDP. Because remittances make up a small portion of these countries' incomes, the bigger problem here is repatriation, since workers in neighboring states are far more likely to return. About 14 percent of Estonians work abroad, in Russia, Finland and Sweden, while 9 percent of Lithuanians have jobs in Russia, Poland and the United States and 10 percent of Latvians work in Russia, the United States and Germany. Even a handful of returning emigrants will cause serious problems, since these countries are expected to see unemployment rise 3 percent to 4 percent in 2009 and 2010 after the collapse of their construction boom. Yet Russia, the primary destination of Baltic emigrants, has exempted Baltic citizens from a decree intended to cut down on foreign labor in Russia in order to retain Russian influence over these workers and their native countries.
As with Georgia and Ukraine, the fate of the Baltics is politicized. Russia is seeking to re-establish its sway in the region, where country populations of 1 million to 3 million are especially sensitive to fluctuations because of their small size and ethnic divisions. About 30 percent of Latvians and Estonians and 7 percent of Lithuanians are ethnic Russians. Ethnic Russians and Russian speakers have served as levers for Russia to destabilize Baltic governments, and Moscow can either incite these groups directly or use Baltic government discrimination against Russian minorities as a pretext for exerting political pressure. Floods of migrants returning from Russia could contribute to the ongoing tug-of-war between Russia and the West.
About $8.4 billion, or 8 percent of Ukraine's GDP, comes from the 13 percent of Ukrainians (6 million) living in Russia, the United States and Poland. Now, in the midst of a severe economic downturn that has already forced the country to borrow from the IMF to prevent insolvency, these funds are drying up — as if Kiev did not already have enough problems. Moreover, Ukraine is of paramount interest to Russia, and its political landscape is being remolded to accommodate Russia’s regional ambitions. It has only just recovered from a bitter dispute over natural gas with Russia, and the last thing it needs, on top of a collapsing economy, is a sudden shortage of assistance from the outside and an influx of hungry migrants.
Romania receives $4.8 billion, or about 4 percent of GDP, from 6 percent of Romanians who work abroad. Bucharest is therefore more exposed to a drop in remittance flows than other Central European nations, compounding problems arising from the credit crunch, depreciating currency and Romania's overexposure to the Swiss carry trade. Following the end of the Soviet era, Romania benefited from a freer labor movement that allowed it to supply workers for the Spanish housing boom, which has now deflated.
Moldova is hugely dependent on cash sent home from Moldovans working in Russia (mostly), Ukraine and Romania, amounting to 31 percent of GDP, or $1 billion. The country's deputy prime minister expects as many as 500,000 of its citizens, 71 percent of all emigrants, to return in 2009. Yet even if only half that number actually come home, the effect will be catastrophic. A country of 4 million people, with a GDP of $4.2 billion, will not be able to absorb the increased pressure on labor markets, social services or infrastructure. The weakening state of Moldova will allow Russia to expand its influence, eliminating Chisinau's wish to remain neutral in the tug of war between Russia and the West.
Albania and Kosovo
Albanians send nearly $2 billion, or about 22 percent of GDP, back home. A large diaspora of 27.5 percent of the Albanian population of 4 million works outside of the country, notably in Greece, Italy and Macedonia. Albanian emigrants and ethnic Albanians in the recently independent state of Kosovo (for which remittance statistics are scarce) are known for their involvement in organized crime throughout Europe. The economic downturn and a fresh crop of unemployed Albanians (especially Kosovars) will give criminal circles an opportunity to flourish, which could actually boost remittance flows, since organized crime is the source of much of this money.
Bosnia and Herzegovina
A full $2.3 billion (20 percent of GDP) goes to Bosnia each year from its 1.5 million citizens (38 percent of the total population) living and working in Croatia, Serbia, Germany, Austria and elsewhere. Bosnia is therefore dangerously exposed to both a debilitating drop off in remittance flows and an influx of returning migrants. Bosnian citizens who have sought political refugee status in Europe who will be reluctant to return, but those in neighboring Croatia and Serbia might consider it. Overall, the loss of remittances will make the country's stability even more dependent on aid from the European Union at a time when that aid is being cut.
The Serbian diaspora returns $3.6 billion, or 11 percent of GDP, to their homeland. Smack dab in the middle of the Balkans, Serbia is in a geopolitically fragile position and in desperate need of cash. Private debt is soaring, an unavoidable budget deficit looms in 2009 and Belgrade risks social unrest as it enacts stringent policies to qualify for a standby loan from the IMF. Belgrade has already sold its state energy company NIS to Russia at a below-market price but has run out of nationally owned enterprises to privatize. Belgrade will look for help from Europe, which may not be able to offer any, and Russia, whose help will come at a political price.
Among plenty of other financial worries and declining revenues from its petroleum industry, Mexico has seen a 3.6 percent drop in remittances in 2008. $24 billion, or about 3 percent of GDP, comes to Mexico from about 11.5 million Mexicans working out of country (about 11 percent of the population), almost exclusively in the United States. The Mexican government is engaged in a bloody attempt to exert its authority over stretches of the country dominated by powerful drug trafficking cartels. This will make it even harder to fund the war against the cartels, and the increasing pool of unemployed labor will help the cartels replace foot soldiers in the current conflict.
Belize, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua are each heavily dependent on remitted cash. Honduras and El Salvador are the most exposed, receiving about 25 percent and 18 percent of GDP in remittances respectively. Declining inflows will provide an opportunity for drug traffickers to tighten their grip over Central American routes and help drive even more unemployed young men into the arms of organized crime and drug trafficking. In Nicaragua, lost remittances will exacerbate an already tense domestic situation (violent unrest between the opposition and supporters of Daniel Ortega's government has escalated in recent months).
With $1 billion, or 21 percent of GDP, worth of remittances, Haiti is highly vulnerable to remittance slowdowns. Approximately 10 percent of its 9 million citizens are working in other countries, mostly in the United States. The drop off in remittances will not result in migrants returning home, but it will force more people to flee Haiti, draining much-needed talent from the country and adding to competition for jobs and tensions over migrants in the United States, which will not take kindly to another wave of Haitian refugees showing up on Florida's shores.
Colombia receives remittances worth 3 percent of GDP from about 4 percent of Colombians who work abroad. The country is in the midst of an ongoing struggle with narcotics producers, drug cartels and radical political rebel groups. Bogota has made gains recently against these groups, the most notable of which is the Revolutionary Armed Forces of Colombia. But the struggle is by no means over, and destabilization resulting from economic troubles, including a loss in remittances and a surge in unemployment, could strengthen the cartels and enable other radical elements to regain some of their former strength. General social unrest is also likely.
The flow of remittances into Ecuador amounts to about 8 percent of GDP, and about 8 percent of the population works abroad. This leaves Ecuador decidedly more vulnerable to declining remittances, which are one of the few sources of revenue it has left. Ecuador is struggling with low prices for oil exports, currency issues and credit and investment shortages after defaulting on $3.9 billion worth of international debt and now needs remittances more than ever. Maintaining popular support amid economic hardship is key for Ecuadorian President Rafael Correa, given that Ecuador has recently seen several military coups triggered by public discontent.
Bolivia has chronic stability issues arising from its general poverty and the dramatic divide in wealth and culture between the highlands and the lowlands. Remittances make up 9 percent of GDP, and as these dry up animosities will rise. Unrest in the highlands among the poor, particularly in the mining cooperatives, is the biggest concern and could undermine President Evo Morales's support. The risk of unrest from the more wealthy lowlands is much lower, unless Morales makes a new attempt at weakening the lowland opposition. Bolivia does not have a particularly high number of emigrants (at 4.6 percent of the total population), but neighboring Argentina is the primary destination, and returning migrants could become a problem. The recent passage of a long-debated constitution by referendum has not eliminated the systemic drivers of conflict in Bolivia, and 2009 will see presidential elections in December that the opposition views as a showdown with the Morales government. Financial strains, including shrinking remittances, will pile onto these fundamental issues to threaten the longevity of the new constitution and make election season uncertain.
Paraguay's recently elected leftist government, led by President Fernando Lugo, is already in a precarious position. Lugo has unseated the party that ruled the country for six decades, declared bold redistributive land reforms and agitated Brazil, regional strongman, by asking more for electricity exports. Paraguay has a sharp divide between the rich few and the poor many and is facing peasant uprisings if Lugo fails to deliver on his campaign promises. The onslaught of external economic forces on the Paraguayan economy, which relies heavily on its export sector, combined with the slowdown in remittances (which make up 4 percent of GDP) could snap this fledgling government.
Peru has 3 percent of its population working abroad and sending back remittances worth about 3 percent of GDP. Most of its emigrants are living in the United States, Spain and Argentina. The country has a history of fiscally responsible government and with the help of international lending looks capable of maintaining access to international capital and pursuing countercyclical policies and stimulus efforts through the economic storm. Nevertheless, the domestic situation is rocky. The local Maoist group Shining Path has stepped up attacks in recent months and there is fear that drug traffickers affiliated with Mexican cartels could form links with these Peruvian guerrillas. Meanwhile, parts of the Peruvian population, which often resorts to protests even during less stressful times, has launched large-scale and continuous demonstrations, and this could hamper government attempts to implement aid and stimulus policies. The loss of remittance flows from emigrant workers simply adds one more ball for Lima to juggle.
Sri Lanka is looking at a loss of remittances totaling $3.4 billion, or nearly 13 percent of GDP, from an estimated 900,000 to 1.2 million emigrants. Many Sri Lankan emigrants have been employed in Saudi Arabia and risk losing their jobs because of the collapse of the Saudi real estate development sector. Also, roughly 500,000 of Sri Lanka's emigrants are ethnic Tamils, and although most of them live in locations from which they are less likely to return (such as Canada and the United Kingdom), those who do return because of unemployment could provide the island's main rebel group, the Liberation Tigers of Tamil Elam, with a recruitment opportunity. For the first time in decades, the government in Colombo has the opportunity to defeat the insurgency, not only militarily but also by assimilating rebel Tamils and their sympathizers back into society through economic development and political engagement. But the government needs funds to bankroll this process, and an economic crisis combined with a drastic loss in consumption due to falling remittances could create unforeseen consequences, potentially derailing a once-in-a-lifetime opportunity.
At the epicenter of a war between the United States and NATO allies and al Qaeda and Taliban militants, Afghanistan has seen millions of citizens flee in recent years. A lot of overseas Afghan laborers are in Iran, which has been hit hard by the financial crisis due to low oil prices and will not need as many workers as it cuts production and retreats from plans to expand. Relying on $2.5 billion, or a full 30 percent of GDP, from about 2 million Afghans living abroad, Afghanistan and its fledgling government will suffer worse financial woes as well as an intensifying war.
Pakistan received $6.4 billion in remittances in 2008, about 5 percent of GDP. Buckling under a financial crisis, ripped apart by insurgency and under intense pressure from both the United States and India to regain internal control, Islamabad is hardly in the shape to have expatriates stop sending cash home. Pakistan will be particularly affected by the slowdown of construction in the Gulf Cooperation Council states, where about half of its remittances originate.