The Remittance Rush May Be Over For Good
(Bloomberg Opinion) -- As the coronavirus pandemic continues, Bloomberg Opinion will be running a series of features by our columnists that considers the long-term consequences of the crisis. This column is part of a package on immigration. For more, see an interview with the World Bank’s expert on migration and remittances, Tracy Walsh on preventing coronavirus from decimating refugee camps, Pankaj Mishra on changing global attitudes toward immigration, and the Bloomberg Editorial Board on fixing U.S. immigration policy.
“Gone to Gulf.” That phrase came up a lot in conversations among grown-ups that I overheard as a schoolboy in Kerala during the early 1980s. My father, who managed a lobster-export business in the port of Kochi, was constantly griping about workers who quit on short notice — or none at all — to take up jobs in the Gulf cities of Muscat, Doha or Jeddah.
His friends — executives in rubber or coffee plantations, officials in the state-run shipyard or port authority — had the same problem: a constant exodus of workers, most of them “gone to Gulf.”
The jobs there were usually menial, and Dad harrumphed about Keralites giving up a gig at an air-conditioned lobster-processing plant “to get roasted in the desert sun.” He was astonished when his secretary, a university graduate he had marked for a bright future in the company, gave it up for a job pumping gas in Sharjah.
But neither Dad nor his friends could compete with the salaries being offered in the Persian Gulf countries. In their helplessness, they took empty comfort in making dire predictions of the day when Arab employers, having built all the palaces they could want, would finally send the foolish young Keralites back home, to beg for their old jobs.
Instead, years later, my father would join the exodus, agreeing to manage a small shipyard near Dubai, lured by the prospect of a final payday before retirement. He was not amused when I suggested that he had been inspired by that promising young secretary and “gone to Gulf” himself.
Four decades on, the dark auguries of Dad and his friends are coming true for many Keralites in the Gulf: Their Arab employers are laying them off in large numbers. And not just them, or there. The coronavirus pandemic has been devastating for foreign workers everywhere.
The official numbers have yet to be reported, but it’s safe to say that so far thousands have died and millions have lost their jobs. The impact on their families back home has been doubly debilitating: The loss of income from abroad — often from the sole breadwinner in the family — comes at a time of acute local hardship.
For economies that depend on this foreign income, the outlook for 2020 is bleak. The World Bank expects a 20% plunge in remittances to low- and middle-income countries. This plunge would be the steepest in history, far exceeding the 5% dip after the 2009 global financial crisis. The pain will be felt acutely in Kerala, which has an unhealthy addiction to remittances, and has failed to create alternative opportunities for its labor force.
This loss of income is likely just the start of a long cycle of despair. It will be years before countries that employ large numbers of foreign workers fully recover from the economic damage caused by the pandemic. Even when they do, they will have less room for migrants. Fewer Keralites will have the opportunity to join the ranks of the “gone to Gulf,” with profound economic implications for their families and their state.
In the petrostates of the Arabian Peninsula, the post-pandemic economic downturn will add impetus to long-standing programs designed to replace foreign workers with locals. Authorities in six member-states of the Gulf Cooperation Council (GCC) have for years been pressing employers — using catchphrases like “Saudization” and “Omanization” — to reduce their dependence on foreigners.
These initiatives have tended to wax and wane with the price of oil: When it is high, unemployed citizens can depend on generous government subsidies, allaying concerns about foreigners taking all the jobs. It helps that many of the jobs done by migrants are unattractive, menial and low-paying.
But years of low oil prices combined with the swelling ranks of unemployed locals have forced authorities to take localization programs more seriously. These programs are at the heart of ambitious economic and social reforms being pursued by new, young rulers like Saudi Arabia’s Crown Prince Mohammed bin Salman, Qatar’s Sheikh Tamim bin Hamad Al Thani and Oman’s Sultan Haitham bin Tariq Al Said.
This reformist zeal is bad news for countries at the other end of the migration chain. Since the fall in oil prices in 2014, remittances from the GCC have plateaued. (In the case of Saudi Arabia, they have fallen precipitously.)
This year, judging by the early indicators, they are projected to go off a cliff. Remittances from the United Arab Emirates to India are expected to drop 35% in the second quarter alone. The UAE is the GCC’s largest source of remittances, and India is their top recipient.
Indeed, India should have experienced a slowing of money flows over the past few years. It bucked the trend in large part due to massive flooding in Kerala in 2018 and 2019, which led to spikes in remittances as Keralites in the Gulf sent home larger-than-usual sums to help with relief and reconstruction.
But that streak is about to be snapped. Unlike previous natural disasters, the pandemic is depleting the flow of money from abroad.
Kerala, which has ancient ties to the Gulf, will likely feel the pinch more than other Indian states. It receives nearly a fifth of remittances to the country, most of it from the GCC, whose members are home to between 2 million and 2.5 million Keralites. Although the state government doesn’t publish annual remittance figures, they are thought to consistently account for over a third of Kerala’s GDP.
This dependence leaves the government of Chief Minister Pinarayi Vijayan handicapped even as it grapples with the impact of the pandemic. Kerala was the first Indian state to record a case of Covid-19 — a student who had returned from university in Wuhan, the Chinese ground zero of the crisis. Vijayan, a Marxist who had won acclaim for his adroit administration during the floods in the previous two years, moved quickly to flatten the curve.
Now the pandemic is spiking again, in Kerala as well as across India. With a loss of state revenues due to the effects of the lockdown, Vijayan could really use another surge in remittances from the Gulf. But this time, it is the diaspora that is in distress, and he must deal with the plight of Keralites who are losing their livelihoods in the GCC as well as the anxieties of their families at home.
The state expects more than 500,000 Keralites to return, many of them in the special repatriation flights organized by the Indian government. This figure is almost certainly an underestimate. Many others will make the return journey months from now, as companies and governments cut more jobs in the Gulf. “It will be a long time before we know how many Keralites have come home,” says S. Irudaya Rajan, who researches migration and remittance flows at the Center for Development Studies in Thiruvananthapuram, Kerala’s capital.
Speaking to me privately, some Kerala government officials say they are not especially alarmed about the localization efforts of the Gulf states. The demand for Kerala’s best and brightest, they say, will resume after the pandemic. Just because the authorities want jobs to be filled by locals doesn’t mean there are sufficient numbers of locals who can fill them.
But Shashi Tharoor, a member of India’s parliament from the state, allows that business may never return to usual. “It’s not just about Arabs taking jobs, but the jobs themselves disappearing for good,” he says.
Junaid Ahmad, the World Bank’s country director in India, likens Kerala’s challenge to that of post-conflict countries, where governments must reintegrate former fighters into society, by training and providing them with economic opportunities. Vijayan has to do the same for the returning Keralites, Ahmad says, “but instead of working with a peace dividend, he has to do this despite a loss in remittances.”
What’s more, he has to do it under extreme pressure at a politically inopportune moment. Diaspora groups are a powerful lobbying force in the state, and Vijayan faces elections in less than a year.
The recalibration of Kerala’s remittance-dependent economy will take longer. The migration of Keralites to the Gulf began in the 1970s; it was already a steady stream when I was a schoolboy in Kochi. By the turn of the century, nearly 1.5 million Keralites lived and worked in the GCC.
Kerala was uniquely positioned to cater to the seemingly insatiable demand for foreign workers from the petrostates. A long maritime history had made Keralites culturally prone to seeking their fortune abroad, and a series of business-unfriendly governments, not all of Vijayan’s Marxist stripe, had prevented the development of a robust private sector at home. (The company that employed my father in Kochi had left Kerala before I finished high school.)
Kerala’s proud record for near-total literacy gave its citizens a leg-up over other Indians — not to mention Pakistanis, Bangladeshis and others — seeking jobs in the Gulf. Despite their better education, the overwhelming majority of Keralites did jobs that indeed required being “roasted in the desert sun,” as Dad put it. In the classic migration pattern, young men endured great physical hardship and forewent luxuries to save up, remit money home and bring over friends and relatives. The steady exodus allowed the state government to get away with its poor economic management; jobs in the Gulf made up for unemployment and remittances fueled consumption. The running joke was that Kerala had a “money-order economy.”
But the money coming from the GCC was rarely put to the most efficient use: Much of it went into personal consumption — families bought gold and property, built homes. Bungalows popped up in formerly poor villages throughout the state.
This spending yielded little employment outside the construction sector, and even there much of the work involved back-breaking labor, hardly in keeping with the aspirations of educated Keralites. In an ironic echo of migration patterns in the Gulf, Kerala began to attract low-cost labor from other Indian states. The remittances were never used to build a significant industrial base, or to develop an information-technology sector comparable to its neighbors. In the absence of a sizable private sector, “there were no other investment possibilities,” says Reuben Abraham, CEO of the IDFC Institute, a public-policy think tank.
Still the remittances kept growing. In time, Keralites began to climb the value chain abroad, from blue- to white-collar jobs, from construction to banking, insurance and other services. This ascent, in addition to the size of the settled diaspora, meant that although other Indian states sent more workers to the Gulf annually, Keralites were able to send more money home.
Now, Keralites risk becoming victims of their own success: It is those white-collar jobs that are most likely to be localized. “Saudis and Emiratis are not going to work on construction sites, says Rajeev Mangottil of VPS Healthcare, a large Keralite-owned company that runs a chain of hospitals in the GCC. “Foreigners who are working in offices are very vulnerable right now.”
Many tens of thousands have already lost jobs to the pandemic’s economic impact, and it may be months before an accurate count is available. Emirates, the Dubai-based airline and one of the UAE’s largest employers, will eventually trim 30,000 from its rolls. (Dubai, it is worth remembering, was already experiencing its fastest pace of job losses in a decade before the pandemic struck.) Unsurprisingly, hundreds of thousands of Indians have registered for special repatriation flights from the UAE.
Among Keralites who have lost white-collar jobs in Dubai, panic has set in. Few have any expectation of finding work back home, much less work that will sustain the lifestyle they enjoyed in the Gulf. “Those who have lost their jobs but have EMIs (equated monthly installments) to pay are stuck,” says Mangottil. “People are applying for jobs that pay half their previous salaries.” When hope is finally extinguished, they will swell the ranks of returnees to Kerala.
What awaits them allows for little optimism. Top state officials, already working flat out to contain the coronavirus spike, have not yet articulated a strategy for dealing with the returning migrants. The government has announced some self-employment schemes, involving small loans and subsidies. But these were conceived before the pandemic, when the returnees numbered in three or four digits, not six.
The glass-half-full view is that the returnees will bring world-class skills and reserves of experience not easily found in Kerala. S.D. Shibulal, co-founder of the tech giant Infosys and one of the state’s more successful entrepreneurs, reckons that a nascent knowledge industry “offers good opportunities for returnees to invest.”
Putting what the World Bank’s Ahmad calls the “skills dividend” to use, however, will be a challenge for a state where socialist policies and powerful unions have created a reputation for hostility toward business. Kerala ranks 21st among 29 states in the Indian government’s ease-of-doing-business rankings.
Changing that perception will require more than efficient management of natural calamities. Competition for investment is fierce among Indian states and will grow fiercer as investments shrink with a slowdown in the global economy. Even if returning Keralites feel inclined to invest in business, there’s no guarantee they will restrict themselves to their home state.
Some officials argue that it would be short-sighted to focus too much on the returnees and lose sight of Kerala’s competitive advantage in the global labor market. Exporting workers is what the state does best. If demand shrinks in the Gulf, it will eventually pop up elsewhere: It’s a matter of pointing the outflow of migrant Keralites in the right direction. Government energies, these officials argue, are better expended on ensuring that the next generation of leavers has the right skills to compete and succeed wherever opportunities arise.
Even before the pandemic, says Tharoor, “Kerala’s big question has always been, How do we get enough people working abroad and sending money home?” That question is now being asked by the governments of dozens of countries that depend on remittances. The past few months have made finding the answer much more urgent.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Bobby Ghosh is a Bloomberg Opinion columnist. He writes on foreign affairs, with a special focus on the Middle East and the wider Islamic world.
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