How the Gulf crisis is striking the Philippines
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How the Gulf crisis is striking the Philippines

IT’S BEEN more than a month since four Arab states placed an embargo on Qatar over allegations the government funds extremist groups – but the tiny emirate is still living large.

The country sits on roughly US$340 billion in reserves, liquefied natural gas (LNG) continues to flow unimpeded, and allies like Turkey are keeping grocery stores well stocked.

Qataris might be able to shrug off the diplomatic crisis, but the migrant labourers (hailing mainly from South and Southeast Asia) who make up the vast majority of the country’s population have been bearing the brunt of the blockade.

In some supermarkets, prices for everyday goods like rice have doubled, eating into to migrant workers’ paychecks and the remittances they send home. Beyond concerns about the price of staples, there are broader doubts about whether certain projects, like the stadiums under construction for the 2022 World Cup, will continue – which raises the prospect of unpaid wages and impoverishment if workers end up having to go home before earning enough to repay the stiff recruitment fees they paid to secure jobs in Qatar.

This could all wind up spelling disaster, not just for these migrant workers, but also for their families and their home countries. Qatar is home to major migrant populations from India, Bangladesh, and Pakistan, as well as hundreds of thousands of workers from Indonesia and the Philippines.

With its heavy reliance on remittances, the Philippines stands to suffer most from rising prices in Qatar. There are an estimated 260,000 overseas Filipino workers (OFW) in the tiny Gulf state, making it the sixth most-popular destination for Filipinos to work abroad. There are so many OFWs in the country, in fact, that Filipino workers make up about 10 percent of the total population.

SEE ALSO: Philippines govt bans deployment of workers to Qatar

The difficulties those workers and their families are going through as a result of the Gulf crisis underscores the dangers of depending so heavily on remittances to drive a national economy. In the case of the Philippines, remittances account for nearly 10 percent of the nation’s entire GDP. Because of the weakness of the domestic economy, more than 10 million Filipinos work overseas, remitting a record US$26.9 billion home last year.  About US$7.6 billion of that total came from the Middle East.

Those remittances have helped minimise inflation, reduce government debt and fuel consumption. The cash has been welcome in the short term, true, but over the long run, they have also nixed the urgency to create more jobs, enact economic reforms and invest in educational and training programmes.

That isn’t the only problem with relying on funds sent home by overseas workers.

While an influx of cash can boost a developing economy, remittances are far from the most efficient way to do it – largely because a handful of money-transfer operators (MTOs) like the Western Union and MoneyGram keep an iron grip on the global remittance industry. The companies charge steep fees, eating up roughly half a trillion dollars annually for some of the world’s poorest countries. While United Nations agencies and other members of the international community have pressed them to reduce fees to three percent or less, Western Union and other big MTOs have succeeded in holding their ground thanks to an increasing concentration of market share – and efforts to force out potential competitors by securing exclusive agreements with certain banks and agents.

The transfer corridors that suffer most from these predatory schemes are in Africa, where fees hover around 10 percent on average, and are as high as 14.6 percent in the southern part of the continent – which is obviously a major problem for one of the least-developed regions in the world.

Costs in Asia are somewhat lower, but they’re still well above where they need to be: in Southeast Asia, the average charge for sending US$200 stands at 7.1 percent (which actually represents an increase over a few years ago). Even that looks like a bargain, though, when you consider the rates further north. The average charge for sending the same amount of money to East Asia stands at 10.3 percent.

Of course, the rates charged by businesses like the Western Union have been a problem for years. The Gulf crisis, though, is now compounding those issues and threatening to leave millions of Filipinos high and dry. This all brings new urgency to the issue, and if there is a silver lining, it’s that this crisis might be the spark Manila needs to start undertaking deeper economic reforms.

SEE ALSO: Duterte brings home over 100 stranded Filipino workers from Saudi Arabia

Philippine President Rodrigo Duterte is now faced with two sets of possible solutions.

The first would require Manila and its neighbours to lobby governments on both sides of the dispute to ensure the safety of their nationals and to reach a solution to the protracted crisis. The governments of Muslim-majority Indonesia and Malaysia, the two other Southeast Asian nations with the highest number of migrant workers in Qatar, already enjoy warm relations with the Gulf state. It wouldn’t hurt for Manila to join with them to lobby on behalf of their citizens to help mitigate the short-term effects of the crisis on OFWs.

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Duterte is now faced with two sets of possible solutions for the crisis. Source: Reuters/Maxim Shemetov

The second set of solutions will take more time and investment, but offers higher returns. The Philippines has banned exclusivity agreements between banks and MTOs high dependence on remittances, addressing one of the factors driving astronomical rates in other countries. Over the long term, though, the Philippines will have to invest far more in its own economic development to stop the unsustainable feedback loop circling around remittances.

So far, Duterte has pledged to increase state spending by 12.4 percent next year in line with his promise to invest in infrastructure to sustain growth. But he will have to go much further, expanding training programmes, easing the cost of doing business to spur foreign investment and investing in promising sectors like tourism (which, incredibly, doesn’t seem to have been impacted by his bloody war on drug users).

The Philippines may be a world leader in shipping human capital overseas, but the country won’t reach its economic potential until it can start generating opportunities for those workers at home.