Developing countries and migrant workers are among the hardest hit by the economic effects of COVID-19, but there is hope believes Richard Ambrose, the CEO of Azimo.
The COVID-19 crisis has shuttered businesses from London to Lagos, crippling economic output all over the world. The World Bank estimates that global remittance volumes will plunge by up to 20% this year as a result, compared to just 6% during the financial crisis of 2008-09.
Emerging economies tend to suffer the most during a global recession. In the past, this was often compounded by the withdrawal of foreign direct investment (FDI). With less money to spend at home, businesses and governments in developed nations reduced their commitment to international development projects.
In 2019, however, remittances overtook FDI as the largest flow of capital into emerging economies, topping $650 billion. Migrant workers around the world were sending money home in larger amounts than ever before, bringing greater prosperity and security to their families. All that is now at risk.
The retail, construction and hospitality sectors are some of the biggest employers of migrant labour in the developed world. The same industries are among the worst-affected by COVID-19 lockdowns and the accompanying economic slowdown, with large-scale redundancies either already happening or expected later in the year.
To make matters worse, migrant workers are far less likely to enjoy benefits like sick pay, unemployment insurance or access to healthcare. This is particularly true in the US, with its smaller social safety net than most developed countries. As jobs disappear around the world, economic pain cascades down from developed nations to developing ones. Remittances are a global lifeline at times like this. Their decline is a hard blow for people whose lives are already likely to have become harder.
But the picture is not all grim. Remittances are surprisingly resilient during recessions, precisely because they are so important for both senders and recipients. They pay for essential goods like food, accommodation, healthcare and education. Many migrants will sacrifice almost any other personal outgoings so that they can continue sending money home.
Some migrant workers may be forced by their employers or by the terms of their visas to return to their home country if they lose their jobs. In this instance, many industries will face a shortage of labour when the lockdown ends and demand returns. This could be particularly acute in the UK, which is already planning radical changes to its immigration system after the Brexit transition period ends in December 2020.
Thankfully, initiatives like the Coronavirus Job Retention Scheme are providing essential support to workers across the UK. Similar schemes are operating across Europe. In the US, taxpayers are receiving stimulus checks from the government as part of a broader stimulus package worth $2 trillion. Support from central banks has also helped to prop up investor sentiment and forestall panic.
In the meantime, digital remittances are growing fast, as many money transfer shops remain closed. At Azimo, new customer numbers have been around 50% higher than before the COVID-19 crisis. Many of the new customers we are seeing are over 60 – usually a much harder group to attract to online services.
It’s crucial that money transfer providers make their services as easy to use as possible, and provide support to new customers where necessary. Now more than ever, digital financial services should be affordable and available to all.
The impact of COVID-19 will reverberate around the world for years to come. It is essential that governments and businesses work together to keep capital flowing and support the migrant workforce, even while many lockdown measures remain in place. Remittances are not just a lifeline for emerging markets – they are an integral part of the global financial system.