Commonwealth Senior Finance Officials Meeting Prepared by the Economic Policy Division, the Commonwealth Secretariat 1

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1 FMM(16)(O)3 Discussion Note Commonwealth Senior Finance Officials Meeting 216 Action to Expand the Economic Impact of Finance Prepared by the Economic Policy Division, the Commonwealth Secretariat 1 Abst ract The Commonwealth diaspora is comprised of approximately 26 million people. This diaspora, with its immense capital stock, is the association s most valuable but currently under-utilised asset. Remittances now dwarf other external flows for many Commonwealth countries and have grown dramatically in the last 1 years, to reach US$14 billion per annum in the Commonwealth. Beyond remittances, diasporas have the potential to provide an additional US$18 billion per annum through investing and saving in their countries of origin. So far, the expansion in the number and range of financial products has attracted only a small fraction of potential diaspora resources. Some governments have taken steps to enhance the enabling environment for diaspora savings and investment, however, substantial supply challenges remain. This will require the attention of remitter and receiver countries, as well as intergovernmental agencies, to resolve. Little is known about the nature of demand from diaspora investors, but surveys suggest there is a large gap between the investment interests and activities of diasporas. This suggests significant opportunities for scalingup diaspora finance. Building on the outcome of the 215 Senior Finance Officials meeting, this session aims to share good practice on how to effectively scale-up diaspora finance and explore plausible support from the Commonwealth Secretariat. At the Senior Finance Officials Meeting, officials are encouraged to: share their experience of reforms to leverage diaspora finance and reflect on the practical challenges and benefits of this action; consider options for pan-commonwealth action to expand diaspora finance, including the Secretariat s proposal. FMM(16)(O)3

2 2 \ Action to Expand the Economic Impact of Finance 1. Size of diaspora finance The Commonwealth represents the biggest group of countries outside of the UN and the Bretton Woods organisations, with almost a third of the world s population (2.3 billion people), and an enormous diaspora community (approximately 25.8 million 2 ). Remittance flows from this global diaspora have already made considerable contributions towards the development of recipient countries. However, diasporas have the potential to significantly increase their development impact by scaling up savings and investments (herein referred to as diaspora finance ). Remittance flows now dwarf other external flows for many Commonwealth countries and have become a key source of finance for economic and social development. The absolute size of remittances has grown tremendously over the last 1 years and is the largest form of external flows to the region. The size of flows varies greatly across countries, as does the significance of remittances as a proportion of GDP, which is most pronounced for small states. Scaling-up diaspora finance offers multiple benefits for the recipient countries, such as (1) providing additional resources to finance development, (2) expanding capital markets, (3) enabling access to less costly credit 3, (4) encouraging greater non-diaspora investor confidence and (5) providing a more reliable flow of resource in the face of growing global uncertainty (e.g. Brexit, oil price rises). It also offers considerable additional benefits for higher-income remitter countries, many of which Figure 1 External flows to Commonwealth countries, Flows (US$, billion) FDI ODA Por olio Equity and Private Debt Remi ances Source: World Development Indicators database, World Bank, 216 Figure 2 Top five Commonwealth remittancereceiving countries (USS, billion), 215 Figure 3 Top five Commonwealth remittancedependent countries (% of GDP), 214 lndia 72.2 Tonga 27.9 Nigeria 2.8 Samoa 17.6 Pakistan 2.1 Lesotho 17.4 Bangladesh 15.8 Jamaica 16.3 Sri Lanka 7.2 Tuvalu 1.7 Source: Migration and Remittances Factbook, World Bank, 216 Source: Migration and Remittances Factbook, World Bank, 216

3 Action to Expand the Economic Impact of Finance \ 3 Figure 4 savings (estimated levels and as a percentage of GDP), Commonwealth Asia savings (current USD (215), millions) savings (% of GDP) Source: Table A1.1: Estimates of diaspora savings for Commonwealth countries from diaspora workers world-wide Figure 5 savings (estimated levels and as a percentage of GDP), Commonwealth Africa savings (current USD (215), millions) are facing increasing pressure to moderate official development assistance, while at the same time foster peace and development to address terrorism and stem international migration flows. Estimates of the potential size of diaspora finance are based on approximations of the quantum of diaspora savings, which is diaspora income in the host country minus consumption, taxes, remittances and philanthropy. Based on the World Bank methodology, we estimate that that the total volume of diaspora finance for Commonwealth countries is approximately US$18 million per annum; higher than the level of current remittance flows. Botswana Cameroon Ghana Kenya Lesotho Malawi Mauri us Mozambique Namibia Nigeria Rwanda Seychelles Sierra Leone South Africa Swaziland Tanzania Uganda Source: Table A1.1: Estimates of diaspora savings for Commonwealth countries from diaspora workers world-wide Zambia savings (% of GDP) 2. Current supply of diaspora finance In recent years there has been an expansion in the number and range of financial products targeting diasporas. No data exists on the total and relative size of the savings and investments vehicles, but diaspora banking products appear to be most widespread. bonds have also received significant global attention encouraged by prospects of patriotic discounts and have been implemented with varying success in a number of countries (Boxes 2 and 3). 4 In terms of equity investments, research has focused on direct diaspora investments such as

4 4 \ Action to Expand the Economic Impact of Finance Figure 6 savings (estimated levels and as a percentage of GDP), Commonwealth Carribbean and the Americas savings (current USD (215), millions) savings (% of GDP) Source: Table A1.1: Estimates of diaspora savings for Commonwealth countries from diaspora workers world-wide Figure 7 savings (estimated levels and as a percentage of GDP), Commonwealth Pacific savings (current USD (215), millions) savings (% of GDP) Source: Table A1.1: Estimates of diaspora savings for Commonwealth countries from diaspora workers world-wide Figure 8 savings (estimated levels and as a percentage of GDP), Commonwealth Others savings (current USD (215), millions) Australia Canada Cyprus Malta New Zealand United Kingdom savings (% of GDP) Savings (Current USD (215), Millions) Savings (% of GDP) Source: Table A1.1: Estimates of diaspora savings for Commonwealth countries from diaspora workers world-wide

5 Action to Expand the Economic Impact of Finance \ 5 Box 1 Types of diaspora instruments 1 Deposit accounts 2 Sovereign bonds 3 Equity private equity; venture capital; mutual funds; impact investing 4 Debt instruments mortgages, home improvement loans 5 Securitisation of assets or remittances 6 Insurance products 7 Other transfer mechanisms i.e. equipment leasing, knowledge exchange in real estate or enterprises which have formed a large, if not the largest, component of diaspora investments in countries of origin while portfolio investments are less common and constrained by a limited number of investment vehicles. The securitisation of assets or remittances offers innovative ways to access cheaper credit lines for households and businesses, for example, by allowing migrants to leverage their credit ratings or collateral in countries of residence to obtain loans in their countries of origin for personal use or for family members/associates. Recipient countries have acted to create a more suitable enabling environment for attracting diaspora finance. This includes creating appropriate regulatory, residency and taxation rules to incentivise financial flows. For instance, many countries (such as India and Turkey) have liberalised their banking regulations to attract diaspora savers to foreign-currency-denominated accounts. Countries have also offered dual citizenship rights to facilitate property rights and avoid double taxation, while some countries have also employed tax incentives to encourage investments. 5 In addition, several countries have established diaspora departments in government ministries to co-ordinate diaspora action. Despite the advances in the supply of diaspora finance products, a number of challenges limiting their uptake remain. There are insufficient financial intermediaries and those that exist are inadequately targeted to democratise investments. Investors abroad often rely on financial intermediaries to manage investments on their behalf (such as mutual Box 2 Ethiopia s experience of implementing diaspora bonds To date, Ethiopia has issued two diaspora bonds, through its Ethiopian Electricity Power Corporation (EEPCO), to self-finance the cost of its planned Grand Ethiopian Renaissance Dam (GERD): 1) the EEPCO Millennium Corporate bond, launched in 29; and 2) the Great Renaissance Dam Bond, which was launched in 211 to consolidate Ethiopia s first offering. Both of these bonds have fallen short of sales expectations for a number of reasons. Ethiopia s first offering was hampered by a combination of perceived risks, including investor sentiment that EEPCO may be unable to fulfil its payment obligations, and an apparent lack of trust in the government to act as a guarantor. Other diasporas, additionally, took exception to the bond investment on environmental grounds. Ethiopia s second diaspora bond issue was intended to address the main perceived shortcomings of the EEPCO Millennium Corporate bond, and entailed both a larger marketing drive on the part of Ethiopian government ministries and the US Ethiopian Embassy, and increased flexibility in the bond s terms and conditions. The Great Renaissance Dam Bond was offered in minimum denominations of US$5 to boost the number of Ethiopians that would be able to access it, and was transferable up to a total of three people. In addition, the bond was permitted to be used as collateral in Ethiopia, with any remittance fees associated with the purchase of these instruments covered by the Commercial Bank of Ethiopia. However, the bond s issuance in the USA, where the bulk of the Ethiopian diaspora is located,has met significant regulatory hurdles, culminating in the decision of the United States Securities and Exchange Commission (SEC) on 8 June 216 that EEPCO had incorrectly sold the bond as an unregistered security. The SEC ultimately directed EEPCO to repay investors in full plus interest, with a total refund bill of US$6.5 million to more than 3, investors.

6 6 \ Action to Expand the Economic Impact of Finance Box 3 Israel s experience of implementing diaspora bonds The Development Corporation for Israel (DCI) was established in 1951, specifically to issue bonds to the Jewish diaspora abroad. Since its inception, Israel has regularly issued diaspora bonds, as a means of harnessing a stable source of external capital, with annual US sales exceeding US$1 billion for the past 3 years, and global sales, to date, approaching US$4 billion. Proceeds have been invested in multiple aspects of Israel s economy, including the strengthening of transportation networks, and the development of the water, energy and telecommunications sectors, among other infrastructure projects. The DCI s bonds are registered with the United States Securities and Exchange Commission (SEC). They are non-negotiable, featuring a large menu of options, from fixed to floating rate, and with maturities ranging from 1 to 2 years. Initially, the DCI s offerings featured a significant patriotic discount. However, as the market has expanded, this discount has been reduced. One important driver behind the growth of the Israel bonds market may have been the promotional approach of the DCI to not restrict instrument marketing to the Jewish diaspora alone. Accordingly, Israel bonds have increasingly come to be seen a credible investment opportunity by nondiaspora investors. funds, impact investment vehicles and microfinance institutions). However, the supply of these financial institutions is restricted by regulatory requirements related to minimum capital investments or type of institution that can engage in money transfer activities. 6 Thus far, a large proportion of intermediaries have targeted larger investors. The number of innovative financial products being offered by governments and intermediaries to attract diaspora finance is limited. This reflects the paucity of literature available on the types of products currently available and their efficacy, as well as inadequate technical policy guidance on the comparable merits and costs of existing instruments. 7 The limited number of bankable projects also contributes to this problem. Marketing of diaspora instruments is often inadequate. Potential investors are generally unaware of investment opportunities. Improvements in mapping the diaspora and developing diaspora profiles as well as building migrant networks would enhance direct and portfolio investment. 8 Despite recent advancements, many diaspora investors continue to face challenges accessing finance for investments in their countries of origin. Financial institutions in host countries are reluctant to provide diaspora investors loans for investments in a foreign country, and financial institutions in the country of origin are unwilling to provide diaspora finance if they are not a resident. Finally, many countries still need to introduce legal, regulatory and residency requirements to facilitate greater investments and savings, and in some cases capacity building of existing institutions dealing with migration and diaspora issues is required, as is better co-ordination across government. 9 Given the cross-border nature of these financial transfers and the related policies, remitter-country governments also play an important role. There is clear scope for greater international co-operation to facilitate transnational mobilisation of assets to, inter alia, facilitate the growth of diaspora investors and financial intermediaries; 1 reduce the costs of cross-country financial transfers; harmonise and share credit scores; and establish agreements of mutual enforcement of bankruptcy (which would enable banks to accept assets held abroad for collateral lending). 11 Furthermore, remitter-country governments could do more to recognise diasporas as partners in their international development programmes. Although initially slow to respond, donors are incorporating diaspora views, resources and knowledge in development projects. The United States Agency for International Development (USAID) has been leading the field. Support from intergovernmental bodies is also critical for countries aiming to leverage diaspora investment capital. They can play an important role through the provision of research and policy guidance, technical advice and pilot schemes for new financial products. The main

7 Action to Expand the Economic Impact of Finance \ 7 intergovernmental agencies working in this area are the World Bank, the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Development Bank (IABD) and the EU but, apart from the World Bank, action remains limited (Annex 2 provides a summary of potential unilateral, bilateral and multilateral action in this sector). 3. Demand from the diaspora Surveys on diaspora preferences and entrepreneurship behaviour have identified a collection of pecuniary and non-pecuniary diaspora investment motives. 12 Expected emotional gains from investment and social impact dividends have been found to be the central drivers of diaspora investment interest. However, diasporas are also motivated by financial reasons, including a desire to increase personal financial independence, and portfolio diversification to enhance the profitability of personal investments. Other significant diaspora investment motives include a desire to support family networks in countries of origin, and social recognition considerations (i.e. a sense of duty typically socialised through households and family circles to invest and contribute to development in origin countries). Evidence suggests that diaspora investors are more likely than other investor groups to exhibit a home bias, which strongly ties their investments to their countries of origin. 13 This reflects a range of factors, including diasporas often superior access to information regarding economic conditions and investment opportunities in their origin countries, 14 and the ability of diaspora investors to more effectively monitor the progress and social impact of remote investments. Furthermore, diaspora investors often have a lower risk perception of political and economic threats in their countries of origin, relative to other investors that hold foreign assets. 15 Currently there is a large gap between the investment interests of diasporas and their activities, despite strong interest in giving back to home communities and countries. For example, in the Caribbean, a survey undertaken by the World Bank found that, while 8 per cent of diaspora members interviewed were interested in channelling capital to build or support an existing business back home, only 13 per cent had done so. 16 Similarly, in a survey examining the business interests of Sierra Leoneans, only 1.3 per cent of respondents claimed to have purchased a diaspora bond, while over 45 per cent indicated an interest in doing so. 17 This difference was even more pronounced in other investment opportunities. For example, while almost two thirds of respondents indicated an interest in purchasing a social-impact fixed-income security, only 2.3 per cent of respondents had done so. This suggests there is considerable potential to scale-up diaspora finance. However, it also points to a number of challenges and blockages affecting diaspora investors, which must be addressed if developing countries are to fully benefit from the vast investment potential that exists in this sector. The primary challenge is the limited understanding of diaspora demand. Although a small number of studies on diaspora engagement have been undertaken, there is still limited demand-side analysis to document the business interests of the diaspora, and the obstacles perceived by the diaspora to investing back into their countries of origin. Existing surveys have been carried out on an ad-hoc basis and, typically, feature a relatively limited number of respondents. Second, the current body of literature suggests that diasporas often have insufficient information on investment and saving opportunities, and the costs of sourcing and vetting deals are often prohibitive for individual investors. 18 Third, a number of concerns were raised about the adequacy of the enabling environment for effectively harnessing diaspora investment. Current challenges faced by diaspora investors include, inter alia, a lack of confidence from the diaspora in the administrations of their home countries to invest capital productively into development projects with a high social impact; excessive bureaucracy and red tape; and cumbersome export import procedures. Furthermore, the diaspora identified a number of additional challenges, including the difficulty in finding lenders willing to work with companies set up by the diaspora; high energy and transportation costs; weak telecommunications infrastructure; and low returns for social-impact investments. 4. Potential Commonwealth Secretariat action The Commonwealth diaspora, with its immense capital stock, is the association s most valuable

8 8 \ Action to Expand the Economic Impact of Finance but currently under-utilised asset. Some countries have scaled-up action to enhance the economic impact of transnational diaspora capital flows, by implementing policies and financial instruments to channel these flows to public and private sector investments. However, significant opportunities for leveraging the development potential of diaspora finance remain unexploited by a large majority of Commonwealth countries. With an enormous diaspora community and membership of both remittance-receiving and remittance-sending countries, the Secretariat is particularly well placed to assist country efforts to increase and guide diaspora capital flows to development projects and initiatives. Informed by the discussion at the 215 Senior Finance Officials meeting, 19 the Commonwealth Secretariat is in the development stages of its diaspora finance work programme, and welcomes the feedback from its membership to help direct its efforts. Depending on membership feedback, we envisage the following options for programme activities: First phase (216 17) 1. Identify the demand for diaspora savings and investments and the opportunities for scalingup by commissioning a survey to determine the diaspora s interest in remitting finance to countries of origin for private and public savings and investments; assess preferred products; and identify obstacles and steps to incentivise savings and investments. 2. Spread good practice by providing evidencebased policy guidance on the relative merits of financial instruments and portfolio choices, including the associated enabling environment reforms (such as regulatory, residency and taxation reforms).as part of this work we would facilitate opportunities for peer exchange across the Commonwealth to share knowledge and guidance on these technical reforms. We would be grateful if members could provide a preliminary indication of their desire to work with the Secretariat on activities 1 and 2. Second phase (218 onwards) We would explore, with members, practical initiatives to leverage diaspora finance based on the technical foundations established in the first phase, for example: 3. Through the Commonwealth Technical Advisory Unit, provide technical advisory services to support the design and implementation of diaspora finance strategies and action plans (i.e. including financial portfolio design). Advisors would be placed in ministries of finance (or relevant ministries) as part of a capacity-building programme. This would require additional contributions from members. 4. Work with partners to develop innovative financial products to leverage diaspora finance. Consider establishing a Commonwealth Financial Intermediary for Investments. This would require additional contributions from members. The priorities for the new Commonwealth Strategic Plan and the availability of financial resources will also guide the final set of Commonwealth Secretariat activities. Notes 1 Heidi Tavakoli, Economic Adviser, Economic Policy Division (h.tavakoli@commonwealth.int), Zoheir Ebrahim, Research Officer, Economic Policy Division (z.ebrahim@ commonwealth.int) and Charumathi Raja, Assistant Research Officer, Economic Policy Division (c.raja@ commonwealth.int). 2 This is the number of formally registered migrants and therefore underestimates total flows, which includes a large number of informal migrants, especially between South-South. 3 By means of patriotic discounts for government bonds or securitising assets/remittances to achieve investment grade ratings. 4 Bangladesh, Egypt, Ethiopia, Ghana, Kenya, India, Israel, Nigeria, South Africa and Sri Lanka. 5 Okele, VE, J Garcia Madrano. and A Cordahi (29), Study to explore mechanisms to facilitate the contribution of the African diaspora to the domestic economies. 6 Dixon, A (215), impact investing 2., People Move, 26 January, available at: peoplemove/diaspora-impact-investing-2 (accessed 2 September 216). 7 bond is the only instrument that has received considerable attention in the literature. 8 Leblang, D (211), Another link in the chain: migrant networks and international investment, in Plaza, S and D Ratha (eds), for Development in Africa, World Bank, Washington, DC. 9 For instance, in many countries more needs to be done to ensure easier access to legal status in host country, dual citizenship, lower visa costs for accompanying family members, improved capacity and efficiency of consular services, availability of quality transport between countries, reduced bureaucratic procedures

9 Action to Expand the Economic Impact of Finance \ 9 and administrative hurdles for cross-border transactions, banking services, and facilities in host and home countries and coordinating the work of different departments within embassies and government ministries to increase efficiency in building relationships with the diasporas and their networks as well as better engagement with key business stakeholders such as chambers of commerce, investment promotion agencies, trade associations etc. Newland, K and S Plaza (213), What we know about diasporas and economic development. 1 For instance, legal challenges for U.S. diaspora residents to invest in their countries of origin are widespread and complex. Due to strict legislation around investor qualifications (as well as certification procedures of these qualifications), diaspora individuals are often required to meet certain wealth or income thresholds to invest in private offerings. In addition, both issuers and investment intermediaries such as foreign banks and crowdfunding platforms face strict solicitation procedures and high compliance costs. This makes it difficult for diaspora investors to have access to origin country investment opportunities in the first place. With respect to donations, unless donating through a U.S. 51(c)(3) or public charity sponsor, donors are unable to receive a tax deduction. The ability to receive a tax deduction is important, because it offers a financial incentive for diaspora donors. Dixon (215). 11 Terrazas, A (21), investment in developing and emerging country capital markets: patterns and prospects. 12 See for example the World Bank s study on Sierra Leone s diaspora and Compete Caribbean s Caribbean Diasporic Entrepreneurship Analytical Report: World Bank (215), Sierra Leone diaspora investment & trade study. Nurse, K and C Kirton (214), Caribbean diasporic entrepreneurship analytical report. 13 Leblang (211). 14 Ketkar and Ratha (n.d.). 15 Mohieldin, M and D Ratha (214), Bonds of the diaspora. 16 World Bank (213), investing: the business and investment interests of the Caribbean diaspora. 17 World Bank (215), Sierra Leone diaspora investment & trade study. 18 Dixon (215). 19 This paper aims to build on the 215 Commonwealth discussion paper An intra-commonwealth framework for maximising the development potential of remittance flows and subsequent discussion at the 215 Senior Finance Officials meeting. 2 Data for the model comes from the following sources: De, S, D Ratha and SR Yousefi (214), A note on international migrants savings and incomes, Migration and Remittances Unit, Development Prospects Group, World Bank, available at: on%2%2savings%2sep%223%2214%2 Final.pdf. (accessed 26 August 216).; Ratha, D and S Mohapatra (211), Preliminary estimates of diaspora savings, Migration and Development Brief 14, Migration and Remittances Unit, World Bank. World Bank (215), Bilateral migration matrix 213. World Bank (216), World development indicators, 216. World Bank Group (216), Migration and Remittances Factbook 216: Third Edition.

10 Annex 1 Estimates of diaspora savings Table A1.1 Estimates of diaspora savings for Commonwealth countries from diaspora workers residing world-wide FMM(16)(O)3 Country of origin stock (million) worker stock (million) income (current US$ (215), million) savings Current US$ (215), million % of GDP Antigua and Barbuda a Australia , , The Bahamas a Bangladesh , , Barbados a.1.7 1, Belize a Botswana a Brunei Darussalam a Cameroon , Canada ,249. 5, Cyprus a , Dominica a Fiji a , Ghana , , Grenada a Guyana a ,57.2 1, India , , Jamaica a ,959. 3, Kenya , , Kiribati a Lesotho a b Malawi Malaysia , , Maldives a Malta a , b Mauritius a , Mozambique , Namibia a Nauru n/a n/a n/a n/a n/a New Zealand , , Nigeria , , Pakistan , , Papua New Guinea a b Rwanda (continued)

11 Action to Expand the Economic Impact of Finance \ 11 Table A1.1 Estimates of diaspora savings for Commonwealth countries from diaspora workers residing world-wide (continued) Country of origin stock (million) worker stock (million) income (current US$ (215), million) savings Current US$ (215), million % of GDP St Kitts and Nevis a St Lucia a St Vincent and the Grenadines a Samoa a Seychelles a Sierra Leone , Singapore , Solomon Islands a South Africa , , Sri Lanka , , Swaziland a Tanzania , Tonga a b Trinidad and Tobago a , , Tuvalu a b Uganda , United Kingdom , , Vanuatu a b Zambia , Grand total , , c Notes: Data and assumptions are based on the following - Data on bilateral estimates of migrant stocks, 213 (Migration and Remittances Factbook, 216); Share of skilled migrants=tertiary educated as a percentage of total emigrants in OECD countries, 211 (Migration and Remittances Factbook, 216); GNI per capita (Current USD, Atlas Method, 215), GDP (Current USD, 215), population aged (%), 215 (World Development Indicators, 216). Assumptions on fixed parameters in model (De et al. (214) and Ratha and Mohapatra (211)) 2 a Commonwealth small states. b As GDP data were not available for 215 for the following countries, GDP figures for the years in brackets was used instead: Lesotho (214), Malta (213), Papua New Guinea (214), Tonga (214), Tuvalu (214), Vanuatu (214). c Percentage of total Commonwealth GDP.

12 12 \ Action to Expand the Economic Impact of Finance Table A1.2 Estimates of diaspora savings for Commonwealth countries from diaspora workers residing in Commonwealth countries Country of origin stock (million) worker stock (million) income (current US$ (215), million) savings Current US$ (215), million Australia ,945. 5, Bangladesh ,13.5 2, Cameroon Canada , Ghana , India , , Kenya , Malawi Malaysia , , Mozambique , New Zealand ,73. 2, Nigeria , Pakistan , , Rwanda Sierra Leone Singapore , South Africa ,13.1 2,2.6.6 Sri Lanka ,65.9 1, Tanzania , Uganda , United Kingdom , , Zambia , Commonwealth small states Antigua and Barbuda The Bahamas Barbados Belize Botswana Brunei Darussalam Cyprus.1.6 1, Dominica Fiji , Grenada Guyana , Jamaica.3.2 4, Kiribati Lesotho a % of GDP (continued)

13 Action to Expand the Economic Impact of Finance \ 13 Table A1.2 Estimates of diaspora savings for Commonwealth countries from diaspora workers residing in Commonwealth countries (continued) Country of origin stock (million) worker stock (million) income (current US$ (215), million) savings Current US$ (215), million Maldives Malta.9.6 1, a Mauritius.1.7 1, Namibia Nauru Papua New Guinea a St Kitts and Nevis St Lucia St Vincent and the Grenadines Samoa Seychelles Solomon Islands Swaziland Tonga a Trinidad and Tobago , Tuvalu a Vanuatu a Total (Commonwealth small states) % of GDP ,78.5 4, b Grand total ,5.2 51,3..5 c Notes: This represents diaspora workers, income and savings from Commonwealth workers residing and working in Commonwealth countries only. Data and methodology same as for results in Table A1.1. a As GDP data were not available for 215 for the following countries, GDP figures for the years in brackets was used instead: Lesotho (214), Malta (213), Papua New Guinea (214), Tonga (214), Tuvalu (214), Vanuatu (214). b Percentage of total Commonwealth small states GDP. c Percentage of total Commonwealth GDP. Note on methodology for estimates of diaspora savings: The estimates of diaspora worker stock, income and savings has been calculated based on a model by De et al. (214) and Ratha and Mohapatra (211). worker stock is based on bilateral migration stocks from an origin country to all recorded destination countries (around 214 countries), scaled to account for the share of working population in the destination country. income is the product of diaspora migrant worker stock and the average income per worker in each destination country. The average income per migrant worker in a destination country is based on the GNI per capita of the destination country, accounting for the shares of skilled emigrants from host countries and for variations in wages between high- and low-skilled workers in the destination countries. savings is calculated as a fixed proportion of diaspora incomes; in this case 2 per cent is used, as by De et al. (214) and Ratha and Mohapatra (211), a figure that is representative of the observed average savings rate in developing countries in 29. Only first-generation diasporas are included. Unemployment is not accounted for in the model.

14 Annex 2 Policy action for diaspora finance The table summaries action to leverage diaspora finance. The rows summarise the types of reforms, and the columns suggest agencies to advance the identified reforms. The table shows only policy suggestions specifically related to diaspora finance and, related to this, remittances. It does not include the many policy measures relating more generally to financial system development, which would enhance the use of diaspora finance as well. Action Unilateral a Bilateral b Multilateral c finance strategy Product development Regulation, residency and taxation Develop and implement a diaspora finance strategy and action plan, informing a country s medium-term fiscal framework (include an assessment of aggregate demand for diaspora investments; identity potential investees; and establish strategies to sequence and implement investment opportunities) Identify investee company and projects (public and private investment opportunities) Select specific financial instrument/mechanism, providing necessary financial assurances and incentives Regulation of private enterprises Banking and telecoms regulation Non-resident bank accounts and financial products Non-resident tax policies Similar to multilateral action Financial assurances and incentives for investments (i.e. guarantees) Technical support for bond registration in diaspora country Assist with the identification of diaspora investors Cross-border banking and payment harmonisation (e.g. deposit insurance) Cross-border collateral/ credit scoring Adapting double taxation treaties (DTTs) and international investment agreements (IIAs) to development finance Technical guidance and assistance for the design and implementation of diaspora finance strategies and action plans Research on the range of diaspora finance investments and their demand (at global and country levels) Technical advice on the relative merits of investment instruments, portfolio as well as product development technical assistance Development of specific instruments/mechanisms (e.g. Homestrings, Microfinance International Corp., bond and private equity instruments) Technical advice on suite of regulatory, residency and taxation reforms that are most beneficial for optimising diaspora finance International bodies (e.g. G2, FATF) to facilitate cross-border financial flows (i.e. address debanking and monitor costs of remittances and diaspora investments) (continued) FMM(16)(O)3

15 Action to Expand the Economic Impact of Finance \ 15 Action Unilateral a Bilateral b Multilateral c Marketing Production Market research to build a profile of diaspora communities Building investment promotion capabilities Investment and promotion Investments within diaspora communities/business associations (and consider establishing a diaspora agency) Management and monitoring of investment portfolios Evaluation of instruments and portfolios Investment promotion within diaspora communities/business associations in diaspora country Ongoing investment promotion Feeding into unilateral monitoring and evaluation (M&E) work Developing data systems for identifying diaspora communities and tracking diaspora financial transfers Through political affiliations, facilitating investment promotion in multiple diaspora countries consecutively Share lessons learnt from M&E across membership (including hosting events for learning and development) Notes: a Receiver government. b Remitter government, with receiver government. There may be some cross-over between International development public policy work of bilateral governments and multilateral action. c International public agency (e.g. international financial institutions, Commonwealth Secretariat). Source: Adapted from Finance: Making Remittances More Productive, Gelb, 216.

16 FMM(16)(O)3 Annex 3 Examples of diaspora finance products Transfer mechanism Scheme Country coverage Evidence on outputs Evidence on outcomes Source private equity Helios Investment Nigerian diaspora owned with Africa-wide investment focus Currently holds over US$3 billion in investment commitments Investment of US$4 million in Wananchi to expand broadband service provision in East Africa com US$1 million investment in AfricaOil to fund drilling operations and development in Kenya and Ethiopia Homestrings Guinean diaspora owned with developing-country investment focus Helped mobilise around US$25 million worth of investment commitment across 13 African countries Focus on investment opportunities with high developmental prospects YooMee provides internet access across sub-saharan Africa Enko is building a network of private schools in Africa Bank deposits and transnational loans Equity Bank Group Available globally to Kenya None found None found ke.equitybankgroup. com/diaspora/ Sociedad Hipotecaria Federal Open to Mexicans in the USA or Canada Advanced 3,5 loans between 24 and 28 None found Paginas/default.aspx The Pag-IBIG Overseas Programme Philippines None found None found Microfinance International Corporation El Salvador, Guatemala and Bolivia None found None found (continued)

17 Action to Expand the Economic Impact of Finance \ 17 Transfer mechanism bonds Impact Investing Scheme Country coverage Evidence on outputs Evidence on outcomes Source Israeli Bond Investment primarily from the USA and Canada US$25 billion since inception in 1951 Credited with keeping the diaspora engaged in Israeli development In 25, bonds made up roughly 32 per cent of the government s outstanding external debt Government has secured a strong patriotic discount Indian diaspora bonds Investment primarily from the USA US$5.5 billion borrowed over three issuances Helped avert balance of payments crises Ghana Golden Jubilee savings bonds Bonds available to Ghanaians, at home and abroad Bonds issued for US$5 million Investment in significant and lasting infrastructure projects in each of the 1 regions Ethiopian diaspora bonds involvement not strong; funds came principally from the domestic market Very few proceeds from the first Millennium Corporate bond Second issuance raised US$4 million, which was used to fund the construction of the Grand Renaissance Dam Upon completion the Grand Renaissance Dam will be the largest power plant in Africa The India Investment Initiative (III) Investment from the USA to India The Calvert Foundation has committed to lending up to US$1 million over the next two years through the III None found org/initiatives/india Mexico s three-for-one programme Investment primarily from the USA to Mexico US$36 million invested by migrants through the programme between 29 and 212 US$1 million invested through government s tied contribution The programme has turned into one of the principal instruments for interaction with the Mexican community in the United States and for negotiation with international organisations (Garcia 25) (continued)

18 18 \ Action to Expand the Economic Impact of Finance Transfer mechanism Scheme Country coverage Evidence on outputs Evidence on outcomes Source Brazilian Central Bank Investment came from Brazilian workers in Japan US$25 million raised at favourable rates Provided access to finance at a time when borrowing costs almost cut off access to international financial markets Future flow securitisation Mexico (various) Global investment into Mexico Telmex securitised telephone receivables from the USA in 1987 Pemex securitised future oil receivables, raising US$336 million With Mexico leading the way in the 199s, by 21 rating agencies had collectively rated over 2 securitisations totalling US$47.3 billion The Mexican government securitised toll road receivables Turkey (various) Global investment into Turkey Securitisation of future receivables in electronic remittance payments, exports, traveller s cheques and international credit cards Turkish banks accessed cheaper funds through securitisation than from financial markets, making them more liquid and hence reducing risk and cost Equipment leasing Ovamba Global investment with Africa-wide focus Over US$11 million raised to date In 215 Ovamba made 86 loan transactions to companies looking to expand their operations Insurance Metcare Available to Ghanaian diaspora in the UK 75, insurance policyholders as of 23 None found int/metcare.html Knowledge Migration for Development in Africa (MIDA) US investment with Africa-wide focus In Ethiopia medical equipment worth US$1.8 2 million has been donated to four hospitals Provision of equipment alongside training, by diaspora members, to use the new technology The Indus Entrepreneurs (TiE) Indian diaspora investment into the USA TiE currently has 13, members, including over 2,5 charter members in 57 chapters across 14 countries Free Microsoft software provided to firms alongside training, networking, mentoring and educational support Source: Finance: Making Remittances More Productive, Gelb, 216