Concern Over Diversion Of Diaspora Remittances From Intended Investments

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By Ayan Abdi Diriye

A diaspora remittance survey carried out last year found out that some of the money being remitted in lieu of investment ends up diverted to other uses.

While World Bank estimates that Somali’s diaspora sent home more nearly twice the level of development aid ($642 million) and five times the level of humanitarian aid ($253 million), attention now focuses on where the money ends up.

Even though the remittances account for about 24 per cent of Gross Domestic Product, far outweighing government revenues, and help to support livelihoods for an estimated 40 per cent of the population, a good portion of it is meant for investment. However, a diaspora remittance survey commissioned by the International Fund for Agricultural Development carried out last year found out that some of the money being remitted in lieu of investment ends up diverted to other uses.

“First, accounting for remittance spending is largely informal or non-existent. This is especially the case for funds remitted between family members, where the social bonds are sufficient to establish trust between sender and recipient, “said the research conducted in 33 countries.

The main concern, according to the survey was that remittance funds might actually being used as investment capital raising eyebrows on conceptual difference between remittances and investments is unclear.

Researchers found out that three categories—food, education, and health care—dominate the responses. This suggests the majority of remitters believe they are financially supporting the basic needs of recipients, rather than making long-term financial investments or generating savings for future use

“Every individual family is different. If you have a good brother, he’ll spend it the right way. Each family is different. Majority of family members just trust the money is being spent well—we don’t actually ask them how they are spending the money,” Member of the Somali Diaspora in Minneapolis, USA.

The senders rely on the family members to address concerns about the use of funds, especially when they want to verify spending, showing the doubt they have that what they send home ends up in the right use.

Most of the diaspora groups surveyed showed that they prefer to send money to women, as they are perceived to be more trustworthy and better stewards of family funds.

“I send money to women. I have been sending money to my sister. After six years she said she’s building a house. Every month she saved money and when it accumulated to $2,000 she bought land. Now that land is worth $8,000. Because she saved her money and made a responsible investment, I’m helping her build a house on that land. Women are the backbone of Somalia,” a Focus Group Participant, Denver, USA told the Somali Diaspora Investment Survey in December 2015.

Although many participants indicated they remit money to friends and family in the Somali regions, fewer identified as investors. In fact, of the individuals who provided data on whether they had invested in the Somali regions during the past three years, only 33 per cent identified as being a past investor. However, 59.3 per cent of respondents who provided information on investment activity indicated they considered themselves to be active investors.

“Every individual family is different. If you have a good brother, he’ll spend it the right way. Each family is different. Majority of family members just trust the money is being spent well—we don’t actually ask them how they are spending the money,” said another focus Group Participant, Minneapolis, USA.

The diaspora investors also have investments in places other than the Somali regions. This makes sense given that investment decisions, unlike remittances, can be targeted in many different ways.

Somalis diaspora were also found to be investors in the financial markets in Somalia. Outside of the Somali regions, respondents indicated investing most frequently in businesses, stocks, real estate, mutual funds and direct investment into businesses in the diaspora community. This demonstrates a comfort level with and knowledge of a range of investment vehicles and stands in stark contrast to remittances targets, which are not flexible.

“Unlike with remittances, investors expressed deep concern over the processes in place to monitor and track the status of Somali investments. Investors seem much more concerned about having processes in place to ensure good business practices and a return on their money. They are also much more likely to view third parties (e.g., international institutions, professional accountants, or auditors) as the most capable entities involved in these processes,” noted the Survey.

Such behaviours stand in stark contrast to the concerns of remitters, whose spending seems more obligatory, frequent, and informally assessed.

The central role played by these remittances to the growth of Somalia as a country cannot be underscored though.

One crucial detractor however remains the uncertainty for individuals and institutions working to increase the economic prosperity of the Somali regions vis-à-vis the diaspora population is whether remittance funds can be or are being substituted for investment (or vice versa). For instance, if remittance funds are being spent in substantively different ways than investments, then one would need to better understand each as a unique financial inflow in order to reach specific programmatic goals. If, on the other hand, remittances and investments are being used to bolster the same activities, the programmatic approach to increasing Somali growth should be less contingent on the specific financial input.