Remittances for Investment: An Innovative Source of Development Financing

By Ariel Gandolfo

While the ambitious, 169-point Sustainable Development Goals are still being solidified, the next big question in development will most certainly be how to finance them. Official development assistance (ODA) as a share of national GDP in many developing countries has been steadily shrinking, and identifying other sources of financing is crucial. Already, discussions here at the CSIS Project on U.S. Leadership in Development have focused on Domestic Resource Mobilization (DRM) and the importance of strengthening national tax bases and collection systems to increase the funds available for investment in national economic growth.

Western Union is one of the largest remittance services in the world.  Pictured here, an outlet in Angeles City, Philippines.

Western Union is one of the largest remittance services in the world. Pictured here, an outlet in Angeles City, Philippines.

Another source of overseas assistance with potential to impact national development is remittances. Remittances from diaspora populations are usually sent to families of the migrants working abroad, and as such have a limited, micro level effect. Yet global remittances already triple the value of official foreign assistance. Leveraging these inflows – which total in the millions and billions of dollars per country each year – to invest in public funds for infrastructure and social entrepreneurship may, however, contribute to more long-term, macro level economic growth. Continue reading

Global Development Forum: Financing for Development Preview

In July 2015, heads of state, finance ministers, foreign ministers, and ministers for development cooperation will gather in Addis Ababa, Ethiopia for the third United Nations International Conference on Financing for Development. The Addis Conference seeks to identify funds to support the post-2015 Sustainable Development Goals (SDGs). This conference will be fundamentally different from earlier FfD conferences held in Monterrey in 2002 and Doha in 2008. In 1980 low and middle income countries received $32 billion of ODA and $7.6 billion of FDI, but by 2013 those countries received $133 billion of ODA and $735 billion of FDI.  As global incomes rise, emerging donors have taken on a much greater role in development. Developing countries’ themselves have gained a greater ability to finance their own development as private sector economic activity in the developing world continues to grow. Below we have outlined some of the ways development finance has changed to respond to a new set of challenges and development realities.

The UN will host the third Financing for Development Conference in July

The UN will host the third Financing for Development Conference this July in Addis Ababa, Ethiopia.

A New Role for Traditional Donors

While ODA and traditional development financing remain important catalysts for development, donors that were once the main sources of financing for developing countries increasingly find themselves playing a complementary rather than unilateral role. Private financial flows have increased rapidly and ODA and public funding for donor organizations have increased at a more limited rate. As a result, traditional donors are finding new ways to leverage their funds to create maximum impact, often through encouraging private sector growth. Continue reading