KEY POINTS:
Despite tougher immigration and settlement laws, the number of people migrating for work across political borders has risen sharply throughout the world in recent years.
Internationally, an estimated 200 million migrant workers send remittances of more than US$276 billion ($362.6 billion) a year to their home countries.
If
they were a single company, the income generated by migrant workers would place them third on the Fortune 500 list.
For most Pacific Islands, like many small developing countries around the world, remittances are a vital part of their economies. Over 40 per cent of Tonga's GDP, a quarter of Samoa's and nearly 7 per cent of Fiji's comes from this single channel. For some countries, it is the biggest single source of income. Growing numbers of migrant workers and rising incomes have seen remittances to Pacific Island nations triple to the equivalent of $558 million in the past 10 years.
Rapid growth in remittance volumes has turned the money transfer business into one of the fastest-growing segments in the global financial sector. While investments in technology and better regulatory practices have seen money transfer costs and fees decline in many parts of the world, they have remained high in the Pacific.
Against widely accepted international best practice for fees of between 1 and 5 per cent of the amount transferred, money transfer companies and other financial institutions charge anything between 15 and 50 per cent in the Pacific region - including New Zealand and Australia.
After a study of work-related migration in the Pacific Islands region, the World Bank last year published a report titled At Home and Away: Expanding Job Opportunities for Pacific Islanders Through Labour Mobility.
It expressed concern at the high transfer fees that were putting undue financial strain on the economies of the islands.
In Auckland last month, the Sydney-based senior World Bank economist for the Pacific Islands, Dr Manjula Luthria, said the high transaction fees were eroding the vital income support that remittances gave to the islands. "It goes against best practice in other high-remittance zones in the world," she said.
In recent years, transaction costs and fees for transfers between the United States and Mexico have fallen by as much as 60 per cent, thanks to changes in regulatory practice, product innovation and stronger competition. Other countries have also worked to reduce fees.
As a follow-up to the 2006 report, Luthria's office in Sydney took the lead in promoting consultation between Pacific Island communities in New Zealand and Australia and the World Bank during the past year. This interaction had shown that Pacific Islanders were struggling to meet the high cost of sending money back home, said Luthria.
The study and consultations were recently presented and discussed at a top-level meeting with representatives from New Zealand and Australian banks, credit card providers and money transfer companies, as well as Australian aid agency Ausaid, and the central banks of Australia, New Zealand, Tonga, Samoa and Fiji.
Several issues have to be addressed before money transfer from New Zealand and Australia to the Pacific Islands can become easier and cheaper: the financial sector needs to consider alternative products that have worked well in similar environments in other parts of the world and the islands' central banks need to strengthen reporting and disclosure requirements.
But last month's dialogue produced a positive response from all concerned parties, said Luthria.
Over the coming months, the World Bank will continue working with the private sector, the central banks and the island finance ministries and regulatory bodies to make money transfers more efficient and cost-effective.
Following the meeting and the agreement of all parties to work together, Luthria said that concrete initiatives could be expected over the coming months, leading to an improvement in remittance services and a reduction in money transfer fees in the next year or so.
* Dev Nadkarni edits the islandsbusiness.com news website
The cost of money
* Pacific Islands migrants send some $558 million a year back to their home countries.
* Remittances amount to more than 40 per cent of Tonga's GDP and a quarter of Samoa's.
* But the fees and other costs of transferring money to island nations is relatively high.
* Now the World Bank is working with financial institutions and the islands to cut the cost.
