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Least Developing Countries (LDCs) should put in place Diaspora and remittance regulations to properly utilize the dramatically increasing remittances they receive and to counter the effects of brain drain, stated the recommendation of the 2012 United Nations Conference on Trade and Development (UNCTAD) LDC Report.
In 2011, remittance to LDCs which has grown almost eight-fold between 1990 and 2011, and continues to rise in spite of the onset of, and fallout from, the world financial and economic crisis. Since 2008, remittances were almost double the value of Foreign Direct Investment (FDI) flows to these countries, which stood at 15 billion USD. They were only exceeded by Official Development Assistance (ODA) as a source of foreign financing which was 42 billion in 2010. Remittance reception per LDC inhabitant has also tripled between 2000 and 2010 from 10 USD to 30 USD. thiopia’s remittance inflows were greater than the FDI the country received, which reached 1.5 billion USD, according to Taffere Tesfachew, Director, Division on Africa, LDC and Special Programs, told journalists at a briefing held at the United Nations Economic Commission for Africa’s (UNECA) hall. The report has put Benin, Burundi, Comoros, Gambia, Guinea Bissau, Kiribati and Uganda together with Ethiopia, as places where FDI is surpassed by remittance inflows.
The report said that remittance could play a greater role in broadening and empowering LDCs’ economies, which will also enable highly educated and qualified nationals of the world’s poorest countries, who have left their places of birth to work elsewhere to counter the effects of brain-drain, by contributing knowledge transfer and channeling investment back home.
Teffera said remittances are much more important for LDCs than for other countries. In LDCs, remittances amount to 4.4 percent of their Gross Domestic Product (GDP) and 15 percent of exports revenues. These shares are three times higher than in other developing countries which are not LDCs.
UNCTAD, which counseled proper utilization of the money from remittances as it helps countries to reinforce their economy. It is also concerned about the cost of remitting, which, especially in the case of LDCs, can be up to 12 percent of the value of the money sent. Remittances received in Sub-Saharan Africa alone would have been six billion USD higher in 2010, had they paid the average remittance fees paid worldwide which is nine percent, according to the report.
UNCTAD, therefore recommended to these 48 LDCs to set Diaspora and remittance regulations, strengthening and broadening financial institutions and infrastructures.
Girmay Asmerom, Ambassador of Eritrea to the African Union (AU) was surprised about this regulation, as his country allegedly has been sabotaged for trying to institutionalize and regulate remittances. However, he stated that it was worthwhile.
“As many financial institutions as possible should be allowed to operate, so as to lower the cost of remitting money. In countries with one or two operators, the cost is significantly high, as there is no or limited competition. The more competition, the lower and lower the cost gets,” Teffera said. The level of development of financial systems is also very important so formal money transfer would be opted for by those sending money home. Money transfer through mobile phones is also recommended by the report, as there are many more mobile subscribers than there are people with bank accounts, the ratio being 368 per 1,000 and 171 per 1,000, respectively.
According to the report, the annual economic growth rate per inhabitant declined since the world economic crisis of 2009 from 5.4 percent during the economic boom to 2.4 percent, with the annual economic growth rate of LDCs falling from 7.9 percent to 4.7 percent. The report said the average real growth rate of the GDPs of LDCs in 2011 was at 4.2 percent, also lower than the 4.9 percent growth rate they recorded in 2009 in the midst of the global recession.
Gross fixed capital formation in LDCs remained well below that of other developing countries but rose slightly from 20.7 percent of GDP in 2005-2007 to 21.6 percent in 2008-2010. The latter achieved a growth rate of 30.1 percent in 2008-2010.
On the other hand, UNCTAD’s report is concerned about the rate of brain-drain which is considered high, at more than 20 percent in 30 LDCs. One out of every five skilled or university educated persons from LDCs lives abroad. In developed countries, the proportion is one in 25. An estimated two million university educated persons from LDCs live and work abroad, one third of them in the US.