ASEAN Must Reform Remittances to Protect Migrant Workers

ASEAN Must Reform Remittances to Protect Migrant Workers
Photo Credit:AP/Gary Chuah

What you need to know

Goals to lower money transfer fees have not yet succeeded.

Singapore has a dirty secret. According to labor advocates, the migrant workers who make up nearly 30 percent of its workforce are subject to extortion, wage theft, extended shifts with minimal overtime pay or days off as well as unacceptable food and housing conditions. While government reforms encourage foreigners to report workplace complaints, the Humanitarian Organization for Migration Economics says workers could only expect to lose their jobs by coming forward.

Of course, Singapore is hardly alone. As the World Bank points out in its new ‘Migrating to Opportunity’ report, persistent barriers to labor mobility are unnecessarily hindering economic integration and development.

The inadequate protections for the nearly 7 million migrant workers across Southeast Asia are a problem. Singapore and Malaysia have both taken steps in recent years to combat certain issues such as the withholding of passports and the granting of mandatory rest periods. ASEAN as a whole might finally take the long overdue step to formally institute protections for the rights of migrant workers during a high-level meeting in November 2017. There have been long delays in implementing the ASEAN Declaration on the Protection and Promotion of the Rights of Migrant Workers, which was signed a decade ago.

But offering protection on paper hardly represents all ASEAN can do to help. The Bangkok Post recently observed that chief among the manifold abuses perpetrated on migrant workers within ASEAN is the withholding and underpaying of wages. But unscrupulous employers are not the only ones taking an undue cut. A sizeable percentage also gets skimmed off the top by money transfer operators (MTOs) such as Western Union and MoneyGram. Migrant workers make substantial contributions to their countries of origin by sending money home to their families, but a lack of competition and heavy fees plague both senders and recipients.

Reforming that remittances market offers sizeable economic benefits for ASEAN’s poorer states. According to the World Bank, global remittances generate three times more money annually than all foreign aid combined. They help families afford basic necessities like food, healthcare and education. Unsurprisingly, the market is growing at a quick pace — in Southeast Asia, remittances have surged by 102 percent over the past 10 years and amounted to US$63.9 billion in 2016.

A few ASEAN member states are particularly reliant on inbound remittances. The Philippines alone receives the third-highest value of remittances worldwide after India and China. In 2014, remittances sent to the country totaled an estimated US$25 billion, equivalent to 10 percent of its GDP. After liberalizing, inbound remittances in Myanmar ballooned from US$127.1 million to US$3.1 billion in just three years.

Unfortunately, many workers and their families rely instead on cash transfers between their home and host countries. This leaves them with the choice between formal MTOs or an informal network of brokers, middlemen and moneychangers.

Within the formal market, MTOs like Western Union have maintained high fees through exclusivity agreements with local agents and banks, preventing middlemen from working with competing MTOs. According to the latest UN-sponsored report on the worldwide remittances market, transfer fees in Southeast Asia are 7.1 percent on average and have grown by 3 percent over the past six years. These stubbornly high rates can be attributed to oligopolies created by the exclusivity agreements. As a 2006 report by the World Bank states, ‘[e]xclusive arrangements can block or bar entry by small competitors and may thus allow the company that enjoys the arrangement to maintain a high price premium’.

The upswing is worrying given that the UN has called for transaction costs to be brought down below 3 percent by 2030 as part of the Sustainable Development Goals . The UN estimates this would save families that rely on remittances US$20 billion every year. While efforts to lower transfer costs in Southeast Asia have stalled, the situation is still preferable to that in southern Africa, where average rates within the region stand at 14.6 percent (for a US$200 transfer) on average.

Faced with high fees, most migrants prefer to keep using informal providers, despite the risks involved with a lack of regulation and the potential for theft or seizure. The remittance corridor between Singapore and Myanmar shows this process at work. Despite banking reforms implemented by the government in Myanmar, as many as 90 percent of Burmese workers in Singapore continue to use the informal hundi network to send money back home. This is partly because hundi agents offer more attractive exchange rates and lower fees than both banks and formal MTOs.

To drive down fees in the formal money transfer sector, a number of remittance-receiving countries — including Russia, Ethiopia and Rwanda — have responded by banning exclusivity agreements.

Since they rank among the highest remittance sending and receiving nations worldwide, ASEAN governments should follow suit. In Singapore, the Competition Commission established in 2005 monitors markets and industries for precisely this type of anti-competitive behavior. An ASEAN-wide legal framework to eliminate exclusivity agreements would free up critical funds for the bloc’s poorest countries.

ASEAN would do well to prioritize this issue on its agenda. It is time for it to make good on the Declaration on the Protection and Promotion of the Rights of Migrant Workers and the broader set of migrant protections that have been decades in the making.

The News Lens has been authorized to republish this article from East Asia Forum. East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centered on the Asia Pacific region.