"Diaspora" is probably one of the most pronounced words in recent years. The massive participation of the diaspora in the last elections suggests the growing role of Moldovan citizens abroad in the political and public life of the Republic of Moldova. At the same time, remittances remain an important source of economic growth for the country. However, the phenomenon of family reunification abroad in recent years could reduce the volume of remittances. In these conditions, the authorities of the Republic of Moldova must rethink and strengthen the diaspora-country relationship, creating more opportunities for the active involvement of citizens abroad in the sustainable development of the Republic of Moldova.
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Remittances could continue to decline
According to several studies, more than half of those abroad are already there with their families. This, in combination with the phenomenon of emigration of entire families and over 144 thousand new applications for the Romanian citizenship, could lead to a decrease in remittances in the coming years. Figure 1, shows the number of citizens in the diaspora as a proportion of the population according to UN estimates (except for those established in Romania and Ukraine), versus remittances per GDP during 2010-2020. It is observed that the proportion of remittances per GDP decreases, while the proportion of the diaspora in the total population increases. This aspect probably reflects the effect of family reunification mentioned above.
Figure 1. Remittances seem to decrease while diaspora is enlarging
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Figure 1. Remittances seem to decrease while diaspora is enlarging
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Source: World Bank, authors' calculations |
The proportion of remittances sent unofficially to Moldova is difficult to estimate, but according to some independent analysis decreased from 40-50% in 2010 to 20% in 2020. It is true that in 2020 and the first quarter of 2021, remittances registered a new growth, but we assume that the higher volume of transfers in the last 12 months is mainly due to the fact that the savings of migrants settled abroad have increased including due to mobility restrictions (for example the saving rate of households in France has increased from 14.6% in 2019 to 21 % in 2020). Another reason would be that those in the Republic of Moldova had a greater need for additional income and that transfers through minibus drivers became more limited.
We developed a model to quantify the economic developments in the absence of remittances, based on World Bank data. For this, we developed an autoregressive model based on (a) annual GDP per capita growth; (b) final consumption of households per GDP, (c) foreign direct investment per GDP, (d) balance of payments per GDP and (e) remittances per GDP. The data refers to the period 2000-19. The model estimates that remittances amounting to 1 p.p. per GDP would generate a GDP growth per capita of 0.19 p.p. Figure 2 illustrates the evolution of GDP per capita in the absence of remittances from 2010. The conclusion is that GDP per capita would have been 29% lower in 2019, if the economy had not received remittances since 2010.
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Figure 2. GDP / capita would have been 29% lower in the absence of remittances since 2010
Source: World Bank, authors' calculations |
Continued emigration will put even more pressure on the pension system
In 2020, the inactive population on the labour market was around 1177.9 thousand people. Although the number of people planning to emigrate has fluctuated since 2014, we can see that there are over 130-140 thousand people, or 11%-12% of the inactive population, who see their future abroad (Figure 3).
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Figure 3. 130-140 thousand people constantly intent to emigrate
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Source: NBS, authors' calculations
In reality, the number of those willing to emigrate could be much higher. This will certainly put even more pressure on the country's economic foundations. For example, the pension system could become even less sustainable. At the moment, the ratio between employees and pension beneficiaries is currently 1.25, while the minimum to have a sustainable social system is 4 taxpayers to 1 pensioner. If we take the UN's long-term forecast, then the number of pensioners could exceed the number of employees in 2030 already (Figure 4).
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Figure 4. The pension system will become even less sustainable
Source: National House of Social Insurance, UN, authors' calculations |
Migrants' savings could be even more valuable than remittances
We estimated that the economy of the Republic of Moldova would need to grow by more than 7% for a decade in order to raise the participation rate by 10 p.p. Respectively, this would mean that additional public and private investment of at least $400 million per year is needed to support such economic growth. However, the phenomenon of family reunification, combined with declining remittances as a share of GDP and persistent emigration intentions, reduces the potential for economic growth. Consequently, the economic recovery plan announced by the EU, a pro-reform governance and a long-term vision of the country's development, could lay the foundations for a period of solid economic growth. In addition, a reform-focused government could attract the sympathy of the diaspora, which could also significantly contribute to the realization of a new program of rethinking the Republic of Moldova.
If the presumption that remittances will be on a downward trend in the coming years is true, then the authorities should focus more on attracting Moldovans’ savings deposited abroad. Based on a preliminary analysis, referring to UN sources, we estimate that the savings accumulated by the diaspora in the 13 most populous countries in 2019 would be around $ 1.8 billion (Figure 5).
Figure 5. The diaspora saves $ 800 million a year
Source: World Bank, authors' calculations
Of these, 1.06 billion would have been remitted to Moldova, and the rest, about $800 million a year, are saved. These savings should become the target of national investment programs and based on them, new opportunities for the return could be generated. Nevertheless, according to our estimates per country (fig.5), we notice that the volume of remittances from Russia and Israel is higher than the savings. This is in line with the conclusions of various recent studies that more than 60-70% of Moldovans abroad, residing in these two countries are having their families still in Moldova.
Programs to attract migrants' savings
The PARE 1+1 program is a successful one. Since 2011 until now, 1757 financing contracts have been signed where the value of grants is 367.63 million lei, and investments in the economy are 1.08 billion lei (Figure 6). It should be noted that more than half of the beneficiaries of the PARE 1+1 program are enterprises managed by first-degree relatives of migrants, indicating towards a possible return of the respective migrants or towards a form of investment to create additional income. The PARE 1 + 1 program has been extended until 2021, but the success of this program requires its extension of beneficiaries and increase of available grants.
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Figure 6. Investments in the economy through PARE 1 + 1 exceeded 1 billion lei
Source: Organization for the Development of the Small and Medium Enterprises, authors' calculations |
Another successful program is Migration and Local Development, where in the first stage, over 40 Home Towns Associations (HTAs) were created, which attracted investments worth $1.35 million during 2015-20. This amount was supplemented by $3 million from development partners and $3.95 million from local authorities. Based on this program, the Bureau for the Relations with Diaspora developed and approved for the period 2019-25 the DAR 1+3 project in order to encourage the development of localities. The project is co-funded by local authorities, development partners and indigenous associations. In 2020 and 2021, 64 projects worth 12.8 million lei were selected from 136 submitted projects.
Additionally, the development of the eco-system of crowdfunding and investment in enterprises is a promising platform for attracting savings. The possibility to purchase shares in start-ups could create both a knowledge transfer channel and an additional income for those in the diaspora. Likewise, selling state securities (SS) directly to the diaspora and the population is another opportunity not yet fully explored. The authorities are already working to make it easier for the population to purchase state securities remotely. However, this process should be accelerated. The savings of those abroad could be deposited in SS, which would create additional income for a potential return.
Instead of conclusions…
The civic involvement of the diaspora in the public and political life of the Republic of Moldova is growing and becoming increasingly important. The new parliament and the future government should not see the diaspora only as an important resource that has sustained the economy over the last 10 years, but as an important part of the country's economic recovery solution. Otherwise, there is a great risk that in the coming years the window of opportunity will be lost, and the Republic of Moldova will reach a point from which it will be difficult for us to return. The economy will no longer be sustainable, pensioners will outnumber the employees, remittances will be reduced, and the country will age and depopulate.
That is why the authorities should develop programs to attract the savings of those abroad, which could be around $800 million a year. These savings, converted into investments in SMEs through PARE 1+1 or crowdfunding platforms, but also through placements in state securities to finance infrastructure investments, could support a new long-term country program - ReThink Moldova 2.0. Respectively, the vision of the country and socio-economic restructuring, which will be decided at the early parliamentary elections on July 11, could lay the foundations of a new diaspora-country paradigm.
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Dumitru Vicol is an associate analyst at the Institute for European Policies and Reform (IPRE) and a strategist on emerging markets in London. He has been involved in projects for the promotion and development of financial instruments in Moldova. He is a graduate of the London School of Economics (UK).
Iulian Groza is an expert in the field of international relations, European policies and good governance. He held the position of Deputy Minister of Foreign Affairs and European Integration. He is currently the Executive Director of IPRE.
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This Commentary is prepared within the project "We and Europe - Analysis of EU-Moldovan relations through innovative media and analytical products", implemented by the Institute for European Policies and Reforms (IPRE), in partnership with IPN, Radio Chisinau, Zugo.md and with the support of Konrad Foundation Adenauer. The opinions presented in this comment belong to the authors.