The Role of Remittances

1. The Role of Remittances Sokol HAVOLLI Central Bank of the Republic of Kosovo Senior Economist SOURCES OF FINANCING FOR ECONOMIC GROWTH: Is there enough money in Kosovo? This presentation reflects the views of the author and does not necessarily express the views of the Central Bank of the Republic of Kosovo. June, 8, 2010, Prishtina

2. Table of Contents: • Introduction and stylized facts • Migrants’ Remittances • Migrants’ Investments • Conclusions

3. Introduction and stylized facts • Migration started in early 1960s. • The surge of migration in 1990s, due to the repression and war. • Almost 70% of migrants during 1990-1999. • The number of migrants: around 20-25% of population (over 500 thousand). Figure 1: Emigration Waves from Kosovo (% of total emigrants)

4. Introduction and stylized facts • More than 75% of Kosovo emigrants are settled in: Germany, Switzerland, Italy and Austria. • The remainder: in Scandinavian countries, UK, USA, France, etc. • The host country is an important determinant of migrants’ earning potential.

5. Introduction and stylized facts • Migrants have substantial earning potential. • Estimates show that the yearly earnings of migrants are over 4bn Euro. • Savings and remittances compose around 28% and 12% of total earnings, respectively. • This shows that there is a substantial potential for investments in home countries by the migrants.

6. Migrants’ Remittances • Remittances represent one of the main components of BoP. • Remittances are 14% of GDP. • During 2009 remittances reached euro 505 million (a y-o-y decrease of 5.5%). • Remittances decreased as a result of rising unemployment rates developed countries. Figure 2: Remittances and FDI inflows in Kosovo

7. Migrants’ Remittances • Remittances mostly used to finance consumption. • Trivial part of remittances used to finance investments. • Small portion of remittances is also used to finance: • Home repairs, • Education, • Health expenses. Figure 3: Remittances

8. Migrants’ Remittances • The main determinants of remittances are: • Migrants’ income, • Years since migration, • Perceived business environment, • Migrants’ investments in home country. • This shows that improvements in the business environment could influence migrants’ remittances.

9. Migrants’ Investment • An empirical investigation shows that migrants investments are also highly dependent on: • Migrants’ perception about the business environment, • Age of migrants • Migrant earnings • To date, there have been identified several important investments by migrants (i.e. participation of migrants in privatization around 15% of total). • However, not at a level that migrants would become an important driver for economic growth in Kosovo.

10. Conclusions • Migrants potential for investment and remittances should addressed. • Migrants investments would also be a very good signal for Foreign Direct Investors. • Many countries adopted policies that would attract migrant investments and remittances • The policies specially designed for migrants include: • Buying land at preferential places or areas for both, investment and housing • Business set-up advisory services • Easing the procedure of doing business • Tax breaks for longer periods (i.e. up to 10 years) etc.