Remittances are often put forward as a solution to poverty alleviation efforts in Pacific island countries – a “win-win for Australia and sending countries” according to the Australian Department of Foreign Affairs and Trade.
Indeed, the concept of migrant workers transmitting money and goods directly from developed to developing communities is not only appealing but economically significant. Global remittance flows reach well over US$529 billion annually, and nations like Tonga and Samoa consistently rank as global top 10 remittance recipients (relative to GDP).
Remittances not only assist Pacific households directly, avoiding burdensome cross-border trade and investment requirements, but labour mobility also enhances people to people links, filling worker gaps in developed nations such as Australia and building the skills of those participating.
However, the consistent focus on remittances by politicians, policymakers and commentators as a policy solution can often sideline the benefits of cultivating in-country economic growth, and much-needed associated reforms, within Pacific states.
Remittances can even be enhanced by domestic reforms in Pacific countries—reforms that should be kept in mind whenever remittances or labour mobility initiatives are discussed. As I suggest below, such reform includes rethinking state participation in key industries as well addressing domestic issues from infrastructure delivery to women’s economic participation.
Getting to growth
One key and long-standing example is also around the enforcement of property rights in Pacific states, which reduces investment opportunities and, as noted by one study, channels remittance flows toward “consumption rather than investment.” While consumption positively generates economic activity, remittance dollars could go a lot further if more secure property rights were in place by flowing toward investment and economic development.
As a 2020 Griffith Asia Institute remittance paper on Fiji notes, remittance providers might consider “being more proactive to provide various market driven forms of remittance-based savings, insurance, pension, investment or credit products for small business start-ups or other investment purposes.”
Another area of concern is state-owned monopolies, which can stifle entrepreneurship and business formation. In Tonga, for example, where two-fifths of domestic GDP is comprised of remittances, the state is actively involved in most industries from electricity and postal services to shipping and telecommunications, no doubt driving much of Tonga’s skilled talent into “seeking better opportunities abroad”, and highlighting another concern around remittances and labour mobility – human capital drain.
“An effective government is necessary for economic prosperity,” notes one ADB report titled Transforming Tonga, “but if the public sector gets too big, it constrains the private sector.” Similar concerns to monopolised and state-owned enterprises have also been raised in the region’s largest economy – Papua New Guinea (PNG).
While property rights and state largesse are two examples of roadblocks to reform, there are countless other issues that stifle economic dynamism in Pacific states but that are within the ultimate purview of Pacific leaders – brittle infrastructure, limited tertiary and education opportunities, patchy law and order presence, poor public health facilities.
As Australian Prime Minister Albanese noted in his recent address to the PNG Parliament, economic participation for women is another ongoing and much needed reform, given that “it boosts productivity, participation and drives growth, because it means drawing on the talent and initiative and enterprise of the whole population, not just half of it.”
This is relevant not just to PNG.
Where to from here?
Notably, Prime Minister Albanese used his recent address in PNG to not talk about property rights or state monopolies but the criticality of labour mobility, citing a “sprit of regionalism” and an expansion of the Pacific Australia Labour Mobility Scheme (PALM), which enables eligible Australian businesses to hire workers from nine Pacific island countreis and Timor-Leste in the event that not enough local workers are available. By June 2023, the number of PALM workers in Australia will grow to 35,000.
While there are clear positives from remittances and labour mobility, there should be an accompanying focus on domestic economic reform in Pacific states. Without this focus, especially from politicians, commentators and policymakers, reciprocal reform expectations on Pacific leaders will not carry momentum.
Remittances are clearly critical for Pacific states. However, remittances and labour mobility should be discussed in the same breath as economic growth and reform as these initiatives seek similar ends – to alleviate poverty and promote prosperity.
Sean Jacobs is a Papua New Guinean-born Brisbane based writer, government relations and public policy specialist.