Remittances in LatAm & Caribbean

The World Bank is out with new data on remittances around the world, so as is our normal wont let's check out the state of play in LatAm/Carib and see how much money is being sent back from the richer (note: not "more developed') countries to the region. Here's a chart with the straight money totals and as usual, Mexico leads the field by quite some way in 2010.

But when you factor in population counts for the top ten remittance countries (sourced this morning from the CIA factbook page) you get a better idea of the effect remittances have on a country.

For example, U$317 per person (man/woman/child) sent back to Guatemala is more like U$100 per month for every family there. That, ladies and gentlemen, is an economy-changing amount of money. For more information on this subject, the new World Bank page and literature is highly recommended. I've spent the last hour wandering around the site.

Remittances in LatAm, 2008 (the chart of the day)

There has been ink spilled already on the slowdown on LatAm remittances (i.e. money sent back from industrialized nations by LatAm citizens living over there) that the financial crisis is causing, but so far the analysis has been stuck at the amounts of money being sent over and hasn't really examined which countries are more likely to feel the pinch.

This chart shows the percentage of GDP made up by incoming remittances for the major LatAm countries (with all due respect places like Belize are left out as their tiny GDPs skew the results out of shape and don't provide a fair comparative sample). The remittances data used comes from the Interamerican Development bank and the country GDP figures are from the CIA using the purchasing power parity (PPP) figures.

Click to enlarge

Top of the pops on this poll is El Salvador, a country that relies on cash sent home for 8.35% of its country GDP; that's an enormous figure and is comparable to the direct effect copper has on the GDP of Chile. Next up are three other Central American states, Guatemala (6.15%), Nicaragua (5.76%) and the Dominican Republic (3.73%). Only then does South America appear, with Ecuador (2.64%), Bolivia (2.51%) and Paraguay (2.4%).

Mexico is next at 1.59% but deserves a special mention due to the absolute size of its remittances trade. At U$25.145Bn it is by far the largest destination for remittances (second is Brazil at U$7.2Bn) and Mexico in fact accounts for 38.44% of all remittances received in LatAm in 2008.

Finally, the trio of Costa Rica (1.25%), Peru (1.24%) and Colombia (1.19%) are the other three countries that beat the regionwide average of Remittances/GDP of 1.09%. It's safe to say that all of the above countries will feel the effects of a slowdown in remittances in 2009 and beyond, with the first tranche of Central American states, Mexico, Ecuador, Bolivia and Paraguay feeling the worst effects.

Links

Click to enlarge, or better still visit the WSJ link below
to see the original context

There has been so much quality reading on LatAm biz/economy/politics out there in the last 24 hours that it would be remiss of me not to direct readers to at least a few of the places.

Colombia: At blog Plan Colombia and Beyond we get the full English translation of an interview with Colombia's Veep Francisco Santos. The nub of Santos' argument is summed up in this line from the post; "Colombia should abandon Plan Colombia, downgrade relations with the United States, and seek relations with governments, like China, that don’t value human rights as strongly." Essential reading for those interested in the country.

LatAm Remittances: Market Memorandum comments on the Interamerican Development Bank's (IDB or IADB, goes under both acronyms, it seems) paper of yesterday that highlights the downturn-to-come in remittance monies for LatAm countries. Recommended viewing along with MM in the graphic above, available at this report in the WSJ. One thing so far unmentioned in the issue is the counterbalance of repatriated citizens and their contribution to local economies. I suppose we'll get round to that eventually.

Mexico: Stupid union leaders strike again...literally. BNAmericas has the outline of the story about how Peñoles workers have rejected a management pay offer and gone on strike. Mgmt are surely going "Great! That means we're making less of a loss on the zinc and lead you would have processed for us." Can someone please get it through the skulls of union workers that there's a recession on?

Peru: Farid Matuk blogs in English and lays wide open the clear irregularities in the methodology used by Peru's economic bodies. Presented in this way it really does seem as though they get an order from Twobreakfasts to "give me XXX result" and then find a way of massaging figures for their meister.

Chart of the day is.....

......remittances to Ecuador 2006 to 2008, by quarter.

Note the three red highlighted numbers that show the Year-over-Year evolution for the third quarters. Not good.

Unfortunately we can hardly expect much from the fourth quarter of 2008, all things considered. For example, Spain's Ministry of Work and Immigration reports that there are 8% fewer Ecuadorians legally residing in Spain since end September 2008. Spain is source to 37% of all remittances to Ecuador (the USA is over 50%, with the rest made up from other countries).

Final thought; in recent times remittances have made up 4% of Ecuador's GDP. Not good at all.

Remittances: a looming problem for LatAm

Here comes another problem for LatAm economies, and Otto has the lowdown and lots of charts to illustrate. Remittances from the industrialized nations are dropping off quite sharply, and that means trouble aplenty for places like Ecuador and Bolivia.

US remittances to traditional receivers such as Mexico and the other Central American states are a well-followed story, so being the contrarian knucklehead that I am I decided to go have a look at the other main source of LatAm remittances, i.e. Spain. The picture that's developing is not a pretty one, sad to say.

Here we go with a few charts. First this one that shows remittances from Spain to all other countries up to 2q08 and is taken from the website remesas.org.

As we can see, the red line that shows the amount of Euros sent from Spain has dropped away for the first time ever. But this is only up to June 2008, so what can we expect for the rest of 2008 (and 2009 for that matter)?

If we look at the number of people from countries this side of the pond working in Spain, we can get some ideas. Here are some charts showing the number of legal workers employed in Spain since January 2006 on a monthly basis. It's worth emphasizing that these charts don't include the illegal workers over there, but all the same certainly give a good representation of the recent demographic trends.

Here is a chart that shows the five main LatAm countries of source for legal workers in Spain, namely Ecuador, Colombia, Peru, Bolivia and Argentina (FYI, next in line is Brazil with around 25,000 resident workers).

Now for some more detailed breakdown, starting with Ecuador as it has the largest number of legal LatAm workers over in Spain.

The drop-off in Ecuadorians working in Spain has been pretty sharp. The high summer season has 20,000 less workers than just two years ago, and since then the numbers have dropped sharply. October 2008 has less than 240,000 Ecuadorians on the Social Security register, and that's 10% down from the same month last year.

Second biggest source is Colombia:

The trend in seasonal workers is clear on this chart, but again we see a big drop in the last reported month of October.

Third is Peru:
Again the summer peak, and again the September and October figures are not forming the same rounded top of 2006 and 2007...the drop is much sharper.

Then it's Bolivia.

There are more Bolivians than ever in legal work in Spain and there hasn't been the same sort of drop as seen by the countries above....yet. Of all the countries mentioned, Bolivia has perhaps the most to lose. The absolute numbers of Bolivians in Spain may be lower, but their remittances account for around 10% of Bolivia's GDP so the effect on this country is significant.

Finally here's Argentina.

Notably, the number hasn't fluctuated so much here. This is likely connected with the lower numbers of Argentines who live and work in Spain in the lower paid, seasonal employment sectors.

This final chart shows the total number of non-European Union legal workers in Spain (includes other countries such as China, Morocco etc).

Again the trend is clear; the drop off in numbers has started much earlier after the Spanish high summer season. There are less migrant workers in Spain. Period. And with the way the world is going, those numbers are very unlikely to move higher for the time being.

These charts seem to indicate that LatAm is more exposed than ever to a downturn in Spain's economy in a very direct way, and that statement concerning my example nation of Spain is just as true for the other industrialized countries that are sources of remittances, such as the USA. The effect of an employment slump in any country is always felt first by the immigrant workers...it's just the way it is, Mr. Hornsby.