Samoa’s economy cannot function without remittances, says expert
25 February, 2019, 10:15 pm
APIA, 25 FEBRUARY 2019 (SAMOA OBSERVER) – The economy of Samoa cannot function without remittances or money sent by Samoans living abroad.
So, says economist Peniamina Muliaina, who is also a lecturer at the Faculty of Business and Entrepreneurship, at the National University of Samoa.
He was asked for an independent view following figures released by the Central Bank of Samoa recording remittances as Samoa’s largest form of foreign exchange earner 2017/2018 financial year of about $503.73 million tala (US$190.6 million).
Almost 70 per cent or $52.93 million tala (US$20 million) of the total remittances are for families and individuals and is an increase of $30.12 million tala (US$11.4 million) when compared to the $322.49 million tala (US$122 million) of the previous year.
Muliaina says while money is sent directly from Samoans living abroad to their families, it indirectly impacts and contributes to growth in the Samoan economy.
“(The figures) It means without remittances the Samoa economy would not have functioned or grew as much as it has in the last fiscal year,” he says.
“In fact, without remittances our economy will experience slow economic growth if at all. Remittances have, still and will always play a huge role in generating economic growth in developing economies like ours.”
“It also means that Samoans overseas play as much role as the Samoans here, in driving economic activities and growth, something that seems to be forgotten at times by those who pay too much attention to the developments we see from time to time.”
Muliaina dismissed claims that money sent from Samoan abroad is going to their families and not to the Government or any development of the country.
He pointed out that that may be the claim of the Government, but alternatively remittances will find its way to the public purse through the Central Bank of Samoa.
“When families here receive money from relatives overseas, they spend it on what they need, whatever that it and it increases the demand for goods and services, because families have money to spend,” explained Muliaina.
“Economic activities to buy goods and services will cause price of goods and services to go up, and that is where Central Bank steps in. Ultimately remittances coming into country, though not directly to Government, will end up in Government through Central Bank who control the flow of money in Samoa.”
Muliaina added the Government does take part of all those remittances through VAGST.
“Yes, the Samoan communities overseas send money directly to our people, but the Government takes part of those remittances by charging VAGST on goods and services, that are bought by the remittance money. Whether those VAGST make their way to supplementary budgets or any other budgets it does not matter. What matters is that people overseas – by sending money over – contribute a lot to generating economic activities for themselves as well as the Government because the Government does take part of those remittances by charging VAGST and many fees.”
In a recent interview, Minister of Revenue, Tialavea Tionisio Hunt said money is sent straight to families of those living overseas and not to the Government.
“The money goes to the family for the fa’alavelaves (domestic obligations like funerals),” said Tialavea.
“They are sending money back to their family, it’s good for them they sending money to them. It’s not like they are sending money directly to the Government to spend. It’s good for any country who receives remittance. Even Fiji they receive remittance from Fijians living and working here and Filipinos too. It’s a two-way stream, it’s the same everywhere but they are sending it to their families and not to the Government.”
But Muliaina disagrees with the Minister, saying its absurd as some of the remittances end up in his Ministry.
He argued that remittances are a mechanism and people don’t give credit due to remittances, because it is working in the background.
The economist also urged the Government to recognise the contribution of the Samoan community overseas
“When we see new buildings and bridges built, it is always the Government that gets all the credit, but remittances are doing its job generating economic growth and people don’t see it and that is why its not important to them.”
Furthermore, Muliaina said remittances provide temporary relief for low income families, who are unable to loan money from lending institutions.
“Remittances provide access to finance for low income families who are unable to get financial assistance from banks and money lending institutions,” he says.
“It provides (temporary) relief from financial hardship faced by thousands of people who are struggling to make ends meet. The negative impact will be if those remittances are spent on other things instead of necessities or if the regular flows of remittances would discourage people from either working the land or looking for jobs.”
As for the money transfer agencies that are at the middle of the transaction between the two parties, they too are benefiting.
According to Muliaina, the money transfer agencies “thrive on the fact and understanding that the ‘Samoan-ness’ in the Samoan diaspora, their sense of belonging and identity is what defines us and as such their hearts and love will never leave our shores”.
“It is that strong force that has, is and will always make them remit moneys to our families and relatives over here. Money agencies understand that and are aware it is a source of income for them. There is an obvious positive correlation between the volume of remittances and income for money agencies. The higher the volume or total of remittances the higher their income collection. Competition for them is on effectiveness and efficiency as well as their rates and fees.”
Central Bank of Samoa, Governor, Maiava Atalina Ainu’u – Enari in a previous interview said the remittances is an additional source of income for many low-income families in Samoa.
“Remittances can then be used by these low-income families to pay for education (school fees), health (medical bills), build homes and buying cars – in addition to daily expenses like food and transport,” said Maiava.
“A small portion of these remittances are invested, for example, setting up a small family business, buying property. Also, the New Zealand dollar has been fairly strong in the past few years, which also contributed to the large nominal value of remittances from New Zealand.”
Maiava acknowledged the senders of remittances from abroad, as they directly contribute to the livelihood of their respective families in Samoa.
“These remittances are directly financing their families’ and churches’ domestic consumption and financial commitments and obligations to their local communities, and possibly to a lesser extent through investments,” she said.
“The main recipients of remittances are individuals and families at an average of 68 per cent, while the second largest recipients of remittances are churches and charitable organizations at 11 per cent on average.
“The bulk of remittances that is received, come through the money transfer operators (average 80 per cent) with 20 per cent received through the commercial banks,” he said.