by Alexandra Mihaela Delcea

Remittances to Romania were, in 2002 and 2005, the largest source of external funding, ahead of Foreign Direct Investments. This goes to show the important role and potential role that remittances could play in the economic development of Romania.

However, in order to keep the flow of remittances to Romania high in the future, there is an urgent need to create attractive business opportunities through private/public initiatives. The following pictures attempt to illustrate this idea, summarizing in a simple and clear manner the choices a migrant is generally faced with:

Scenario 1: Temporary Migration

O-outgoings, every day expenses
E-emergency funds
S-savings
R-remittances

In this first scenario, the rectangle on the left represents the total income of the migrant in the country of destination. In this case, the family of the migrant, or at least part of it (children and parents) are left in the country of origin.

The income will be allocated between O - outgoings, every day expenses, E -emergency funds, which may eventually be remitted, S - savings or any kind of investment the migrant may wish to or may have to undergo in the country of destination and R - remittances. If one must for example go on a language course one must pay that cost and the amount S will not be remitted home. Also, if a very attractive investment opportunity comes along, that money might be invested in the host country. Thus, S represents the potential remittances. R - are the actual remittances for every day living expenses of the family at home: food, medicine, education, travel, property.

Scenario 2: Long-Term/ Permanent Migration

O-outgoings, every day expenses
E-emergency funds
I-investments (property, education)
LTI-long-term investments
P-property at home
X-unknown-potential future investments; the one that has to be created through public or private initiative

If no measures are taken to maintain the migration flows in the temporary timeframe, it is possible that remittances will decrease drastically. This is very plausible, once all obstacles in the way of migration within the E.U. disappear and only the subjective factors remain in the way of permanent migration. And even these subjective factors can often be influenced by the objective ones.

In this second scenario, the migrant is in the host country for the long-term and with the closest members of the family (spouse, children, parents if still alive). P - is the property at home which could be the basis for money transfers from the home country towards the host country. I - represents the basic investments in the country of destination such as property and education. LTI - stands for long-term investments, which can be in a business or development project, and for which the migrant has the choice between the country of origin, that of destination or even a third country. This is the potential for remittances and is what the private and public sectors in the home country should be targeting. One must not forget that the migrant is a rational economic agent who wishes to allocate its income so as to obtain the maximum satisfaction. However, due to time restrictions and limited information, this point is not always attainable and much of what could be used for investment in productive activities is lost.

The migrant should thus be seen as an investor waiting for a business proposition from a bank, a company, a specialised Government Agency. The self-fulfilling expectations are essential to illustrate this point. If the public and private sector expect remittances to be spent on purely consumption goods and even worse, imported such goods, they take no action to attract this money in any investment, productive projects. Because of this, the remitted money does end up “wasted” and the migrants and economy as a whole lose out.

Therefore, in order to encourage the flows of remittances to Romania and their investment in business projects, there are a few things that could prove effective:

• a) A private/public partnership/initiative in managing remittances and attracting them in local development projects/productive investments
• b) Increased information and awareness about investment opportunities among the migrant and non-migrant communities
• c) The reduction of the costs for transferring money
• d) The creation of a research centre to focus on all aspects of migration, so as to provide well-documented guidance for policy-makers and all other related parties

Romania, a member of the EU starting with January 2007, will probably remain a labour exporting country to more developed economies. Thus, remittances sent by Romanians are likely to increase. The presentation also looked at the Romanian migrants in the UK . Hypothetical future scenarios are discussed with the aim of encouraging public/private initiatives to attract remittances in various mutually beneficial investment projects.

Alexandra Mihaela Delcea is currently studying towards the exams in insurance organized by the Chartered Insurance Institute (UK). She obtained the master in Economics from UCL in 2005.