Mobilisation and Managing of Financial Resources and International Financial Flows in Developing Countries

By Alberto Mazzali and Lars  Holstenkamp

The WG workshop has been structured in two sessions. The first one on “Mobilisation and Managing of Financial Resources and International Financial Flows in Developing Countries” dealt with the mobilisation of domestic resources with three presentations on taxation and tax evasion, consequences of capital flights in DCs and effectiveness of development of local taxation systems.

The research presented by Le Brun, based on a panel data of 127 developing countries from 1999 to 2007, indicates that the negative effect of the “shadow economy” is actually contingent on a minimum level of corruption and emphasizes that the governments should concentrate their efforts to fight tax evasion activities which can seriously damage the tax system. On the other side, the governments should not expect much additional revenues by diverting resources from high return taxes (VAT, excises,…) towards micro-activities taxation.

Tadesse showed secondary data on capital flights showing the relevance of the issue: Global Financial Integrity 2009 finds that Ethiopia, which has a per-capita GDP of just US$365, lost US$11.7 billion to illicit financial outflows between 2000 and 2009. Moreover, he presented data from open interviews with relevant actors underlining the seriousness of the problem.

Von Haldenwang presented empirical results from a study of the property tax reform process in Indonesia. In-depth results from six municipalities indicate that more (domestic) resources are mobilised, but that the full potential is not yet used. There seems to be no bottleneck with regard to personal and administrative capacities. Instead he highlights that local governments shy away from instruments with higher political costs which at the same time may generate more revenues.

The next three presentations addressed different issues related to finance for development: Corporate Social Responsibility requirements in the Mexican oil industry, reserve holdings and financial South South cooperation.

Chiang introduced into a methodology to create proposals of concrete social responsibility initiatives prone to encourage the economic and social development of the population living in 7 different contractual areas in Mexico. The methodology was developed by a group of researchers of the Universidad Autónoma Metropilitana, Unit Iztapalapa (UAMI), in the frame of a research project named Social and Environmental Aspects of the Oil Industry.

Essers presented theoretical considerations on the level of reserves held by Low Income Countries. In their work the authors build on a theoretic model by Barnichon (2009). He showed results from preliminary parametrisations. The discussion focused on heterogeneity of the group of LICs and parameter constellations.

Villani explained the extent and the working of two institutions of South-South financial cooperation: the Venezuelan Petrocaribe programme and the Brazilian National Development Bank, emphasising that – even though not directly comparable – the financial flows exceed ODA flows for several countries. A major effect highlighted in the discussion was the additional policy space given to debtor countries.

The second session of WG meeting was centred on the themes of remittances as one of the primary FfD resources source and of the access to resources for small entrepreneurs and rural population.

The first paper presented by Clara Cappelli dealt with the possibilities of better assessing the growing importance of remittances in developing countries by adopting the Gross National Disposable Income (GNDI) as a measure of the size of the economies. The presentation went through and discussed some figures on the national account indicators for 27 countries ranking amongst the world remittance top receivers and highlighted how the GDP and the GNI do not account for the so-called unilateral transfers (foreign aid and workers’ remittances among others) that  have proven to be one of the largest flows entering developing countries and play in fact an important role in enhancing a population’s average living standards.

The following three contributions presented case studies on the role of remittances in local development. Barbara Bonciani provided an overview of current research being done regarding the use of collective remittances in regional and local development strategies and explored the role of migrant associations as new actors in transnational funding strategies. The survey highlighted the strength of the communities programs managed by migrant associations that are linked  to their knowledge of local demands and their capabilities of harmonizing local demands with support programs, but also how the effectiveness of collective remittances depends mainly on the quality of cooperation between the hometown associations (HTAs) and other stakeholders such as the local government and the private sector.

A second case study analyses the linkages among remittances, farm Investments and development in Kerala, India. Agnes Pohle of the University of Kassel compared primary data regarding the spending of households for agriculture and their farm investments of a group of households who receive remittances  and a second group  who do not receive remittances. The analysis highlights that in the short term remittances relieve the economic situation of households giving room even for investments, while in the long run even increase their vulnerability. The surveyed investment choices are mainly oriented to rubber cultivation. As rubber trees do not allow water infiltrating deeply into the soil, this might lead to a lowering of water tables in the future. The case study gives thus indication of the importance of including environmental impacts of remittances into the overall account.

Professor Jeremaiah Opiniano presented a third case study concerning the role of remittances and basing on a field research carried out in two Philippino communities through an exploratory research tool on overseas remittances and rural development, the Remittance Investment Climate Analysis in Rural Hometowns (RICART). The analyses presented the remittances’ potential for hometown development both from the side of the remitters and their families, and the side of the rural localities and their investment conditions. Conclusions pointed to some policy indications including the opportunity of providing financial literacy programs for departing and returning migrants and their family members, of promote sound local financial intermediation systems. According to the authors, local authorities should initiate business climate reforms and support the creation of more enterprises

The discussion following the presentation concerning remittances highlighted the different perspective offered by the four papers on remittances issues and focused on some details such as the difficulties of assessing remittances role at macro level because of the contradiction that still affect the account criteria of the main source of data (BoP, OECD, etc.).  The debate also permitted to confirm and compare some of the case study results with other findings of mentioned by WS participants.

The following presentation focused also on results of the analyses of primary data concerning rural communities in the Bukavo region in the Democratic Republic of Congo. Maité le Polain, introduced her investigation about the indigenous savings and credit associations. By analysing financial practices of members of mutuelles de solidarité, an model promoted by NGOs, the paper shows that rotating schemes  practices are not completely abandoned but in fact articulated with accumulation scheme practices (ASCA). The coexistence and articulation of various savings and credit practices by the poor confirmed the complexity of demand for financial services. The conclusion challenges the assumption of NGOs and International Organisations that improved access to finance in developing-countries is purely a question of increasing the offer without understanding the complex interplay of factors regulating the demand of a particular community.

The last contribution also addressed the question of accessing credit and financial services through the analyses of the Moroccan small and medium enterprises (SMEs) financing sources. The picture provided by Professor Khalid Rouggani evidenced the many drawbacks of Moroccan financial system and its incapacity of ensuring resources to some of most dynamic sectors of the national economy. The presented data confirm the not optimal allocation of funding by the bank sector that is still mainly oriented to favor the biggest companies. Among the possible policy options, the authors proposed a in depth renovation of the SME financial assistance system with a relevant reform of the conditions and requested collaterals as well as of significant simplification of procedures both by banks and public funding institutions. The following discussion underlined the importance of always considering the different potentialities related to use of financial resources and the quality of investments when examining the question of access to FfD.

Alberto Mazzali and Lars  Holstenkamp are conveners of the EADI Working Group on Finance for Development