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Diaspora Communities as a Driving Force for Development: Is There a "Business Case"?

BY: Zenebe B. Uraguchi, Dinka Majanovic, Almira Kadić - 02. April 2018
© Helvetas

There is interest within diaspora communities in supporting the development of their “country of origin” beyond the transfer of remittances to their (extended) families. Globally, the number of people living outside their country of origin has almost tripled over the past 45 years — from 76 million to 250 million. In many countries, remittances contribute to keep national consumption afloat and represent up to a third of the Gross Domestic Products (GDP). Worldwide, remittances amount to around 445 Billion USD and hence triple the amount of Official Development Assistance (ODA).

However, the role that migrants can play in contributing to the development of their countries of origin — beyond sending remittances — has been short of its potential. More recently, however, diaspora engagement in a more facilitative manner is said to be an important and emerging area for contributing to development. In this blog post, we discuss if there is a business case supporting the claim.

Three reasons for championing diaspora engagement   

While many countries have recognised the potential of their diasporas to contribute to local development, diaspora engagement has also come more prominently on the radar of development cooperation.

First, diaspora communities are seen to serve as a vehicle for transferring resources, technology, knowledge and ideas to their home countries and thereby contribute to their economic and social development. There is indeed high potential for maximising the positive impact on creating jobs and income through financial investments, networks and skills of migrants/ diaspora communities in the countries of origin. Financial and skills flows from diaspora communities are often seen as the most tangible element of the nexus between migration and development. To fully reap this potential, it is key to have a conducive legal framework in place.

Second, compared to a typical foreign direct investment (FDI), diaspora investment has a special appeal. Investment decisions of diaspora communities are not entirely driven by financial gains; there is also an emotional attachment to the country of origin. Diaspora communities have the local knowledge/networks and higher motivation because of collective memory and the myth about the homeland, including the desire to “return home one day”.

A third reason considers diaspora investment as complementary or alternative source of financing for development due to the decline in development cooperation during the post-recession years and the recent rise of populism. Implementation of the Sustainable Development Goals (SDGs) faces a serious financing gap. To maximise the positive impacts of remittances, the SDGs directly aim at a) reducing remittances transfer costs to below 3% and b) better utilising the positive impacts of remittances on development.

An example from Bosnia and Herzegovina (BiH)

Successive waves of migration created a diaspora community from BiH representing a significant population in size, spread and depth. The current population of BiH is estimated to be 3.53 million. It is also estimated that there are about 2 million people from BiH living in more than 51 countries, constituting more than 55% of the population of BiH. [1] Over 95% of emigrants from BiH have acquired citizenship or residence permits in their host countries.

Engagement of diaspora community from BiH, mainly in economic terms, with their homeland, has been short of its potential. If diaspora engagement is relevant and that it offers untapped opportunities, why is this not already happening in BiH?

Contributions from a large number of BiH diaspora community are still limited to sending remittances — 1.5. Billion Euro of remittance is sent every year to BiH, making up 15% of the country’s gross domestic product (GDP).  Cash serves as a lifeline for households struggling to make ends meet. It is also a source of foreign currency for the BiH governments in addition to other capital inflows such as foreign direct investment, public debt or official development assistance. While remittances have supported economic growth, existing investment initiatives are limited to the wholesale sector (stores, bars, and cafés), real estate and tourism as well as agricultural activities.

Even if diaspora community members have business ideas that go beyond remittances, these are often carried out on ad hoc basis, relying many times on informal networks. “Migrant networks” support investment from the diaspora community to their country of origin. They are used to support capital flow as well as the provision of relevant information for investors. However, available information rarely supports tangible, commercially viable investment opportunities, costs and barriers to make informed decisions. Nevertheless, more recently coordinated and professional initiatives such as Restart or Nasa Perspektiva have started to offer professional services to potential investors from the diaspora.

Significant regulatory barriers (e.g. lengthy procedures, inadequate transparency of the governmental institutions, very low level of digitalisation of governmental services) and limited rule of law also seem to discourage potential diaspora investors. Policy makers and officials of BiH are enthusiastic about engaging the diaspora in a more formal manner and attract investments. The Department for Diaspora exists within in the Ministry for Human Rights and Refugees. On the Ministry’s proposal, the Council of Ministers adopted “Policy on cooperation with diaspora” in April 2017, which represents one of the main steps to operationalise and coordinate diaspora cooperation. Yet, in practice, cooperation among different institutions (including foreign missions in the receiving countries) and with the diaspora communities remains a challenge. [2]

Building the business case through addressing root causes

The above list of problems is more symptoms than root causes. The main reasons lie in the underperformance or the absence of services in coordination and information, research and advocacy. During the past few years, there have been several different initiatives supporting the engagement and collaboration between diaspora and local communities. Donors recognise the potential and have decided to invest in different projects, raising awareness about diaspora communities’ potential, supporting their engagement, and directing their initiatives towards conducive framework conditions.

One of the key challenges is effective coordination and communication among the different actors. Oftentimes, diaspora communities are not sufficiently networked and equipped to start a coordinated dialogue with the BiH’s government institutions. Investors also seem to have little confidence in government institutions’ interest or capacity to improve the regulatory and policy environment and thus avoid contact with officials and politicians mainly at the state level.

The problem also lies in the lack of effective mechanisms for exchange between private sector enterprises/investors and government institutions. At the international level where diaspora communities work and live, platforms for coordinating investment initiatives have only recently been set up and mostly focus on creating business linkages between interested enterprises in BiH and receiving countries. Activities focusing on supporting effective mechanism for the exchange of ideas and channels for initiating dialogue with government institutions in BiH and the respective Embassies is at very initial stages. This coordination is particularly important, as policymakers require reliable information on the demand and priorities of investors.

A realistic business case must start with relevant and up-to-date assessments that consider the incentives and capacities of different stakeholders (e.g. investors and other business partners). Diaspora communities may have less perceived risk than other typical investors; however, a much-perceived risk arises from a lack of good information about local business opportunities and corresponding legal requirements. This can be a significant obstacle to investment by even the most committed diaspora investors. There is either lack of research or the capacity to conduct good assessment highlighting opportunities and risks of potential sectors for investment. Ready-to-use information coming out of a good analysis of data is crucial and it shapes investment decision-making and informed actions.

The vision for a business case in BiH, therefore, may be an adequate and relevant system for information/research about investment opportunities, linkages and advocacy for increased engagement of the BiH diaspora community. The focus should be on supporting business-driven initiatives and solutions for the sustainable growth of entrepreneurs and businesses to create jobs or contribute to better incomes of citizens. These are some of the issues that youth employment initiatives in the Western Balkans try to tackle.

Diaspora communities, in general, are not “magic bullets” to solve complex development problems and are unlikely to alter structural constraints or reconstruct fragile states on their own. However, with a good understanding of the root causes and well-defined strategies, such initiatives may contribute to the long-term to economic development and progress on the path to EU accession.

[1] The Ministry of Human Rights and Refugees of BiH; BiH Agency for Statistics: Census of population households and dwellings in Bosnia and Herzegovina, 2013 Final results-June 2016; Marko Valenta and Sabrina P. Ramet, “Bosnian Migrants: An Introduction”, in Marko Valenta and Sabrina P. Ramet (eds.), The Bosnian Diaspora: Integration of Transnational Communities, Farnham, 2011.

[2] Ministry for Human Rights and Refugees of Bosnia and Herzegovina, “Policy on cooperation with Diaspora“, April 2017, pp. 10-11

Programme Manager, East Europe, South Caucuses & Western Balkans; Senior Advisor, Sustainable & Inclusive Economies
Dinka Majanovic has over ten years of experience in economic development of Bosnia and Herzegovina through the creation and implementation of economic programmes, measures and projects. She worked on regulatory reform and development projects with the EU, USAID, SIDA, the World Bank and UNDP, advising both government institutions and the private sector on development and growth. Currently, she works as IT Sector and Policy Leader for the MarketMakers project implemented by a consortium of Helvetas Swiss Intercooperation and Kolektiv ltd.
Almira Kadic is an economist with international working experience for a multinational private company, development projects and government. She works for MarketMakers, Youth Employment Project, implemented by Consortium Helvetas Swiss Intercooperation and Kolektiv ltd. in Bosnia and Herzegovina, as Business Process Outsourcing Sector Leader.
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