Using OFW money to beget more money

Can the role of our overseas workers in the economy be enhanced to make them true-blue “mga bagong bayani?” Besides spending their hard-earned money on food, appliances, real estate and other nonproductive or dormant assets, can OFWs be enticed to go into business or other productive activities that generate continuing income for them, their families and their communities?

A brief look at the OFW phenomenon may perhaps help in answering these questions.

With an estimated 1,420,000 Filipinos working abroad as migrant workers and 3,900 more leaving each day, their remittances not only continue fueling the economy by generating much-needed dollars for the national treasury, but also assure  the sustained improvement of the living conditions of many of the workers and their families.

Wealth creation

In 2010, the Philippines recorded $18.76 B in OFW remittances.

Money, it is often said, begets money. Apparently, however, OFW money has not resulted in the creation of more wealth.

Paradoxically, even as more and more Filipinos leave the country to work abroad, the poverty incidence in the Philippines has not subsided.  Despite bigger amounts being remitted by our migrant workers, there is little evidence to show that the economic benefits have trickled down to the poor communities where the workers originate.

Moreover, even immediate families of migrant workers are not being guaranteed an improved economic condition over the long haul.

According to the Episcopal Commission for the Pastoral Care of Migrants and Itinerant People of the Catholic Bishops’ Conference of the Philippines, 60 per cent of the families of OFWs remain poor. This is especially true among domestic helpers and other workers in the unskilled-labor category, who mostly return home broke because they have not saved for the future or do not know how to make productive use of the little funds they may have managed to set aside.

Harnessing remittances

Thus the concern among policymakers now is no longer how to increase the amount of OFW remittances but rather how to harness the remittances for wider-scale socio-economic development and longer-term growth that could only come from investments in business and agri-business, self-employment, and other job and income-generating activities.

A study completed this year by the Small Enterprises Research and Development Foundation (SERDEF) and the UP Institute for Small-Scale Industries (UP ISSI) sought to address this concern by analyzing how migrant workers’ remittances can be channeled to productive use.

Commissioned by the International Organization for Migration under the Spanish-funded MDG-F Program on Youth Employment and Migration being implemented by the ILO, IOM, UNFPA and UNICEF, the study identified ways to make use of OFW remittances for the development of the migrant workers and their families and communities.

The study, titled “Channeling Remittances for Development: A study toward Creating Model Mechanisms,” produced  blueprints for appropriate interventions  that can be pilot-tested in four Philippine provinces targeted by the UN Joint Program: Agusan del Sur, Antique, Maguindanao, and Masbate.

From the literature review, focus group discussions and value chain analysis carried out under the study, it was recommended that migrant workers’ remittance flows be channeled to enterprise creation through market-oriented interventions in the target provinces.

Pro-poor and market-oriented approach

In consultation with stakeholders from government, business enterprises, business support institutions and OFW families, the study identified four industries to support with a package of interventions, one for every target province.

These are rubber intercropped with abaca for Agusan del Sur, muscovado for Antique, rice for Maguindanao, and backyard livestock production for Masbate.

Interventions to be used for promoting the industries should have the following attributes: market-oriented, job-creating, pro-poor, permanent-capacity building, quick-winning, transparent, and sustainable.

The one-province one-industry approach is prescribed not so much to pursue specialization in production  as to ensure market competitiveness,  through a concentrated effort of meeting only one industry’s market requirements for quality, quantity, cost and delivery efficiency. The sectoral strategy would help industry players build capacities to address common constraints while sharing costs as well as benefits. Such a strategy would likewise gather otherwise diluted resources into a bigger pool that would allow economies of scale in purchasing, marketing, distribution and, generally, bargaining vis-à-vis clients, suppliers, banks, government assistance agencies and other business service providers.

At the same time that it is market-oriented, the model mechanism is also biased for the poor, that is, designed to generate employment, self-employment, micro-enterprise, and other opportunities for them to break away from poverty and improve their lives. The best pro-poor strategy, if it can be found, combines hard economic goals with soft social objectives.  In other words, it is ideally one that takes immediate enterprise creation measures that result in sustained alleviation of poverty in the society.

Needless to say, the OFWs themselves are expected not only to provide capital but also to participate in enterprise development in a hands-on manner. With their major financial stakes and their extensive experience in their respective fields—whether technical, managerial, administrative, etc.—many migrant workers are likely to do well as managers, entrepreneurs, mentors, suppliers, promoters or selling agents.

For their part, it is always incumbent upon local governments to provide the policy, fiscal and infrastructural environment conducive to enterprise development and growth. They pass the enabling laws and ordinances, build the support infrastructures and services and allot budget for these, and have it in their power to reduce red tape when business registers and otherwise transacts with government. Other enabling parties in the local community are banks, cooperatives, money transfer agencies, and government and nongovernment providers of services, including training, technology, information and business development services.

Core strategy: value chain promotion

Most importantly, the model mechanism suggested by the study uses value chain promotion as the core strategy for harnessing OFW remittances for enterprise development.

A value chain, at industry level, refers to all the processes involved in producing goods (and services), starting with raw materials and ending with the delivered products (also known as the supply chain). It is based on the notion of value added at every stage or link of the chain. The sum total of link-level value-added yields total value. The chain includes primary activities—inbound logistics, operations or production, marketing and sales, and maintenance services—and support activities—administrative infrastructure management, human resource management, technology and procurement. The costs and value drivers are identified in each value activity.

With the participation of migrant workers and their families, local enterprises, local governments, support institutions, and other players and stakeholders, the model mechanism will identify interventions that will maximize value added at each link of the value chain.

Value chain analysis helps a business gain competitive advantage over other firms. Thus it is chosen as the core approach because, being market-oriented, it has proven to be an effective tool for identifying profitable business enterprises. It is also easily understood by the concerned players. Whether employed or unemployed, productive or unproductive, poor people are familiar with the market; it is where they produce, sell or buy goods.

According to SERDEF president Paterno V. Viloria, the results of the study have been the basis for the design of four pilot projects that will benefit the migrant workers, their families and their communities in Agusan del Sur, Antique, Maguindanao and Masbate.

The projects will be implemented later this year with continued support from the IOM.

(The author, a former UP ISSI training specialist and for many years a chief technical adviser of several technical cooperation projects of the International Labor Organization, is now technical adviser and member, board of trustees, of the SERDEF, a resource hub for micro, small and medium enterprises in the Philippines. Visit the SERDEF website at https://www.serdef.org for more features, case stories and how-to’s on starting and growing in business. )