strenghtening diaspora engagement and …...a reduction in sending fees would mean more money in the...

Dissemination report for the Technical Assistance

Intervention in Tonga

Strenghtening diaspora

engagement and

remittances in the

Kingdom of Tonga

This Action is funded by the European Union

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The provision of demand-driven tecnical

assistance to ACP governments and

Regional Organizations

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The catalyzer of the lessons learned from the other two components – a set of varied activities

to provide food for discussion to the ACP-EU Dialogue.

The promotion of initiatives implemented

by ACP-basedNon-state Actors

(NSAs).

Introduction

THE ACP EU MIGRATION ACTION PROGRAM

The ACP-EU Migration Action was developed in the framework of the African, Caribbean and Pacific (ACP) – European Union (EU) Dialogue on Migration and Development. The Dialogue has become an important process to discuss migration issues among the 79 ACP Member States and the 28 EU Member States. The ACP-EU members decided to focus their attention and cooperation efforts on the topics of visas, remittances, readmission, trafficking in human beings and smuggling of migrants. The objective of the Action is to support activities in areas of strategic interest to the ACP-EU Dialogue on Migration through three interlinked components (see on the left).

DISSEMINATION REPORT ‘STRENGHTENING DIASPORA ENGAGEMENT AND REMITTANCES IN THE KINGDOM OF TONGA’ This dissemination report represents a short, hand-out version of the full Technical Assistance Intervention report that was completed under the ACP-EU Migration Action Program, following a request by the Tongan Ministry of Foreign Affairs and Trade. The full report is authored by Ms. Daniela Villacres. The contents of this report are the sole responsibility of the authors and cannot be taken to reflect the views of the ACP Secretariat and its Member States governments, the European Commission or the International Organization for Migration.

September 2017 International Organization for Migration (IOM) 3

Tonga’s Strategic Development Framework (TSDF-II) casts a spotlight on the importance of remittances and diaspora for Tonga’s development. Given the vital role which remittances and diaspora play in Tonga’s socio-economic development, the Government aims to facilitate the continued flow of remittances into the Tongan economy and to strengthen the relationship with its diaspora around the globe.

Against this backdrop, the Ministry of Foreign Affairs (MoFA) has commissioned this technical assistance to provide a deep-dive into the development potential of remittances and diaspora with the purpose of providing recommendations for maximizing their impact.

Background to the Technical Assistance (TA)

Strenghtening diaspora engegament and remittances in Tonga ACP-EU Migration Action4

In short, in support of the objectives laid out in the TSDF-II, the purpose of this technical assistance is to provide guidance on the identification of priority interventions around diaspora engagement strategies and remittance policies. More specifially, per MoFA’s request, this advisory support will offer recommendations on the following three topics:

(i) encouraing the flow of remittances, including options for lowering the cost of sending remittances and an analysis of regulatory obstacles; (ii) facilitating opportunities for the investment of remittances in local development initiatives, and

(iii) strengthening engagement with the Tongan diaspora.

Remittance Service Provider in Tonga - Photo Daniela Villacres

WHAT DO WE KNOW ABOUT REMITTANCE FLOWS TO TONGA?

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Part I: ENCOURAGING THE FLOW OF REMITTANCES

USD 116.4 million

High costs

MTOs

... of remittances were received in Tonga through formal channels (2016). Additionally, a significant amount also enters through informal means.

Remittances are estimated to comprise 27.9% of Tonga’s GDP (2015).

Seasonal workers

Remittances from seasonal workers in Australia and New Zealand constitute a significant and expanding stream of Tonga’s remittances. For example, a 2015 study finds that seasonal workers from Tonga and Samoa send home approximately 42 percent of their take-home income as cash remittances

Costs for sending remittances in the Pacific Island corridor are generally high. In Tonga, since November 2015, there has been a noticeable rise in the total overall cost of sending money home. The latest data from April 2017 indicate that the average cost to send USD $200 is the following: * from Australia to Tonga: USD $24.11 or 12.05 percent * from New Zealand to Tonga: USD $23.01 or 11.5 percent. * from the United States to Tonga: USD $19.53 or 9.76 percent

Approximately 88 percent of remittance transactions are completed through Money Transfer operators (MTOs). More specifically, the remittance market is dominated by Western Union. Digicel’s KlickEx also offers a popular alternative though mobile technology. In addition, Tonga’s market for international remittance counts with some smaller MTOs, which are struggling to establish a customer base.

September 2017 International Organization for Migration (IOM)

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RECOMMENDATIONS TO ENCOURAGE REMITTANCE FLOWS

I. Adapting to a new regulatory framework

During the last several years, Tonga’s financial institutions, including all RSPs, have been significantly impacted by a sharp increase in regulations of financial markets at the international level. In an effort to curb money laundering and to combat the financing of terrorism (AML/CFT), these reforms have imposed more stringent compliance measures on the international remittance market in Tonga.

Banks must now also feel confident that they know the MTO’s customer—the remittance sender and recipient—and that the end use of the remittance be legal and legitimate. In the absence of this certainty, many correspondent banks have stopped taking deposits from some MTOs because they see them as high risk. Because of that, many smaller MTOs serving Tonga have been forced to close. This not only contributes to a more fragile remittance sector, but also increases the systemic risk in the financial system as services become concentrated in a single entity.

In order to mitigate the burdens brought on my AML/CFT regulations, collective action is need between authorities in Tonga, in sending countries, and in the home of global correspondent banks. The following are some specific recommendations:

Increase awareness of how new regulations and compliance requirements are affecting the market for international remittances. A dedicated more comprehensive and nuanced analysis is needed. The new regulatory environment in Tonga is already having severe impacts on MTOs, banks, and customers, which will only continue to drive up remittances fees and push remittances into the informal market, disrupting the stability of the country’s financial institutions.

Develop a broad-based national approach to the AML/CFT. Upgrade relevant regulatory and supervisory frameworks to comply with international standards with regard to both AML/CFT and tax transparency. Frameworks should address current shortcoming and the enforcement of appropriate financial sanctions.

Outreach and dialogue with global banks and regulators in other affected jurisdictions. The objectives of ongoing discussions are three-fold: (i) to clarify Tonga’s compliance framework, (ii) to ease the concerns of corresponding banks, and (iii) for regulators to convey their expectations.

Invest in training and capacity building for AML/CFT compliance and scale up the number of AML/CFT specialists.

Strenghtening diaspora engegament and remittances in Tonga ACP-EU Migration Action

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◦Encourage correspondent banks to upgrade the methodology and the systems by which information is gathered so that the termination of bank accounts is driven by well-informed risk-based assessments.

◦Financial industry could develop and deploy new tools and technologies, such as KYC utilities, to help lower compliance costs for banks. In order to ensure the consistent application of standards, the industry could also boost efforts to support the training of bankers in implementing AML/CFT regulations and expectations.

◦Establish a centralized national KYC utility, as a proactive measures to “know” remittance customers. Given the relatively small population size, it is feasible to collect KYC data on individuals receiving or sending remittances through MTOs, bank customers, and beneficial ownership information for companies.

Some images of the Technical Assistance kick-off

meetings, focusing on data collection through

meetings and interviews with government, private

sector, and non-state stakeholders.

Photos: Daniela Villacres


II. Reducing the costs of sending remittances

A reduction in sending fees would mean more money in the hands of migrants and their relatives, instead of having it lost in the financial transactions. In fact, the World Bank estimates that if the cost of sending remittances was reduced by 5 percentage points, recipients worldwide would receive up to $16 billion more each year. Reducing the cost of sending remittances to Tonga is one of the main objectives of this technical assistance. Below are some specific recommendations for mitigating rising fees:

◦ Encourage Competition Increasing competition among RSPs and the introduction of new actors into the market is one of the most effective ways to reduce the cost of sending remittances. There are limited actors in the Tongan remittance market. The Government of Tonga can help reduce the cost of sending remittances by designing policy interventions to support the insertion and solidification of MTOs and players who remain in the game.

Support Emerging Players Tonga’s current remittance market counts with three promising emerging players: TDB’s Ave Pa’anga Pau, ANZ Bank’s goMoney, and Rowena Financial Services.

RECOMMENDATIONS TO ENCOURAGE REMITTANCE FLOWS

Support ICT Platforms and Other Internet-Based Options. Tonga’s international remittance market is still relatively unexplored territory for ICT actors, many of whom can offer cheaper overall rates to transfer money. They also save time for the sender and on the receiving end, they can have important implications for reaching poor and marginalized communities in rural areas where other financial entities and services are scarce. Internet-based options, such as online platforms, hold also promise for Tonga’s international remittance market.

◦ Remove the Foreign Exchange Levy. It is strongly recommended that Tonga’s levy on foreign exchange should be repealed in 2020 upon the completion of the Pacific Games. The taxing of remittances through a foreign exchange levy or other mechanism is generally considered bad practice. In addition to increasing costs, taxes can drive remittances to informal channels, raising security risks and making tax collection difficult and costly.

◦ Implement Financial Literacy Campaigns, support for and implementation of financial literacy campaigns is one area where the Government can have the greatest and most direct influence on remittance prices. See on the right for a detailed analysis.

◦ Improve Data Collection on Remittances and Diaspora to inform any future Government policy or intervention regarding remittances and diaspora engagement.

8Strenghtening diaspora engegament and remittances in Tonga

ACP-EU Migration Action

Focus on: FINANCIAL LITERACY

September 2017 International Organization for Migration (IOM) 9

Financial literacy and customer awareness regarding remittance prices and money transfer mechanisms is an important component when considering policies and interventions to lower costs. Moreover, support for and implementation of financial literacy campaigns is one area where the Government can have the greatest and most direct influence on remittance prices.

PFIP

AWARENESS ON AVAILABLE OPTIONS

PACIFIC FINANCIAL INCLUSION PROGRAMME

FOLLOW-UP OF INFORMATION CAMPAIGNS

TARGET THE FULL STAKEHOLDER CHAIN

Improved education and knowledge dissemination regarding remittance providers, their prices, and mechanisms is an important factor to bringing costs down. Important tools for increasing transparency and awareness of remittances prices are Send Money Pacific (http://www.sendmoneypacific.org) and Remittance Prices Worldwide (https://remittanceprices.worldbank.org/en).

PFIP is a regional program in partnership the UN, EU Australia, and New Zealand, which provides access to financial services and education. Tonga’s continued commitment to PFIP is essential. PFIP focuses on digital financial services - increased financial literacy in this field is a priority for Tonga, especially if these new actors and innovations are to enter the remittance market successfully.

Disseminating information alone is not enough. A greater investment and follow-up is needed.

In the case of Tonga, it is particularly important to not only target seasonal workers and other remittance senders, but also to expand programs to include remittance recipients - especially vulnerable populations, such as women and residents in the outer islands. Greater awareness is also needed among friends and family outside of Tonga to ensure the key messages remain consistent. Employers affiliated with the seasonal worker programs must also be informed of the new options available for rendering payments to migrants.

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Part II: INVESTING REMITTANCES FOR ECONOMIC DEVELOPMENT

Although remittances are private funds to be used at the discretion of the recipient, there are various options that could stimulate their use for mid-term to long-term investments, instead of only for consumption. For example, within a facilitating policy environment, remittances can be successfully channeled for economic development in small business development, housing, small-scale infrastructure, education, as well as larger investments to support trade, commerce, and capital markets. The following section explores some options for investing remittances to further Tonga’s economic development.

◦ ◦ Financial Products & Services Linked to Remittances Remittances can serve as a catalyst for financial inclusion. Banks and other financial institutions can reach out to remittance recipients to promote basic products and services

◦ Investing Remittances in Small Business Development The growth of small and medium sized enterprises (SMEs) is an important component for economic development and one towards which remittances can have a direct and immediate impact. Remittances can serve as initial capital for small loans put towards SME development and the Government could have considerable influence linking remittances to microcredit schemes and other SME development programs. These programs could also greatly benefit from the existing expertise of the Tongan Chamber of Commerce and microfinance institutions (MFIs).

◦Investing Remittances in Large Scale Ventures There is currently no official strategy in place to attract and harness diaspora investment. In particular, channeling remittances and engaging diaspora for trade missions and export promotion is a priority for the Ministry of Commerce, Consumers, Trade, Innovation, and Labour. The channeling of remittances into large-scale investments will require a strengthening of in-house financial capability, as well as analytical and administrative capabilities on the part of the appropriate government entities.

◦ Diaspora Investment Funds Diaspora investment funds are structured vehicles to bring remittances into the country and use them for investment purposes. They serve to mobilize pools of individual diaspora investors to invest collectively in their country of origin. There is flexibility in designing funds to target specific categories of investments or investors.

◦ Diaspora Bonds In addition to diaspora investment funds, diaspora bonds are another innovative mechanism to channel remittances into large-scale investment. Diaspora bonds are a type of government debt instrument issued by a country to generate financing from its diaspora around the world.

-- both Diaspora Investment Funds and Bonds are considered as long term planning options in Tonga, as first additional analysis is needed: on how they would work, what infrastructure is need and what the risk is.

◦Strenghtening diaspora engegament and remittances in Tonga


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Part III: DIASPORA ENGAGEMENT STRATEGY

WHAT DO WE KNOW ABOUT THE TONGAN DIASPORA?

105,000 126,400<

Focus group with Tongan diaspora in the USA (Hawaii) - Photo Daniela Villacres

TONGANS OUTSIDE OF TONGATONGANS IN TONGA

Australia New Zealand USA

It is estimated that the Tongan diaspora is as large in number, if not bigger, than the population of Tongans residing in country! (2011)

Are the countries where the majority of overseas Tongans reside. It is important to note that the experiences, profiles, concerns, and interests of the Tongan diaspora in each of these three locations are distinct.


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RECOMMENDATIONS FOR A DIASPORA ENGAGEMENT STRATEGY

I. Next steps for developming a diaspora engagement strategy

The Government of Tonga recognizes the increasingly vital role which diaspora have played in the country over the past decades and it considers their engagement to be integrally aligned with the country’s sustainable development goals. However, it has yet to formalize its efforts, elaborate a framework, or implement any initiatives. At present, diaspora engagement is informal, occurring primarily within individual families via remittances and within communities through village associations and kava clubs. On a larger scale, Tongan migrants contribute significant funds for their schools’ alumni associations and for their church programs. The Government, however, does not currently engage the diaspora in any strategic or concerted fashion.

◦ ◦ ◦Mainstreaming & Framing the Dialogue on Diaspora If diaspora is to be mainstreamed within national planning as purported in the TSDF-II, then the diaspora must be elevated not only within the national dialogue, but also within the national consciousness. , The call for diaspora engagement requires the awakening of citizens to participate and take ownership in the process of governance.

◦ Coordination and Governance Structure The agenda for diaspora engagement currently sits across several ministries. Well-delineated responsibilities have to be assigned. It is necessary to identify early on which

government agency will take the lead for the development, implementation, and coordination of the diaspora engagement strategy. MoFA, MIA, and the Ministry of Finance and National Planning (MoFNP) are obvious contenders for the leadership role.

◦ ◦ Identify the Target Population The Tongan diaspora encapsulates a broad range of migrant actors: this may include economic migrants, seasonal workers, students, 1st generation diaspora, 2nd generation diaspora, diaspora investors and others with business interests, diaspora tourists, and many others. Any future diaspora engagement strategy must clearly identify which type of diaspora it aims to target.

◦ Diaspora Registry The creation of a diaspora registry is essential for the identifying and coordinating the target population. A diaspora registry, likely managed by MoFA’s consular offices, would serve as a database for diaspora individuals, associations, and businesses, including their locations, points of contact, interest, and concerns. It could also be a resource to catalog diaspora’s various skills and capabilities that could be leveraged for Tonga’s development planning.

◦ ◦Strengthen Diaspora Civil Society If diaspora are to be effectively engaged for Tonga’s development, it is of crucial importance that the diaspora also organize and mobilize on their own terms. This gives the diaspora the opportunity to take ownership over their own engagement, to design their own development agendas,

Strenghtening diaspora engegament and remittances in Tonga ACP-EU Migration Action

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to identify their own development priorities, and to determine the ends of their financial contributions. This needs to be a priority of the diaspora engagement strategy moving forward and necessitates robust civic institutions and practices among Tongan migrants. The Honolulu focus groups however, reveal a notable absence of diaspora civic associations.

◦Optimize Channels of Communication The dissemination of accurate and timely information is a foundational pillar for any diaspora engagement strategy. The Government needs to establish clear, accurate, and consistent channels of information to communicate to all diaspora groups, including men, women, youth groups, seasonal workers, all churches, various associations and committees, diverse professional backgrounds, private sector groups, etc. It is also important to identify clear points of contact for diaspora communication. MoFA’s overseas mission could centralize, coordinate, and facilitate this communication, or even create positions for diaspora liaison officers.

◦ ◦Cultivate Public-Private Partnerships A successful diaspora engagement strategy must ensure a broad base of support cutting across government, civil society groups, and the private sector. Currently, the private sector presents a tremendous untapped resource for the financing of diaspora-led community development projects.

◦


II. Possible areas of intervention

The diaspora engagement strategy must be a two-way exchange that adequately reflects the interests, needs, and concerns of the diaspora, as much as those of the Government. This requires understanding the varying priorities and motivations of the diaspora. The following presents specific areas of interventions that would be of particular mutual benefit for both diaspora and government stakeholders:

◦ ◦ Prioritize Financial Inclusion & Literacy Programs The design and implementation of financial education programs is a priority in Tonga. These programs have cross-cutting impacts across all objectives of this technical assistance. Moreover, diaspora also report needing financial education in order to manage their own funds and to promote savings and investment in the countries of residence. This would in turn help to enhance diaspora-driven development.

◦ Invest in the Celebration of Tongan Culture Tongan cultural events and festivities are an underexplored opportunity around which to rally the diaspora and foster partnerships. At the same time it is important to incorporate the evolving views of younger generations. It It is also recommended that the strategy appoint Tongan cultural “ambassadors” such as sports stars and other highly recognizable Tongans, who would represent Tonga and generate excitement around shared Tongan values and traditions.


◦ Implement Skills Exchange Programs Diaspora can be an important source and facilitator of technology transfer and skills development in their home country. Skills exchange programs are of particular interest to the diaspora, especially the youth and second-generation migrants, who are looking to volunteer in social development programs during summer months. Professionals within the diaspora from diverse career backgrounds could also impart their specialized knowledge and skillsets in order to strengthen Tonga’s human resources capital. As a first step, the diaspora engagement strategy could conduct a resource and skills mapping exercise among the diaspora in order to ascertain the types and range of expertise that exist among the diaspora.

◦ Diaspora Registry The creation of a diaspora registry is essential for the identifying and coordinating the target population. A diaspora registry, likely managed by MoFA’s consular offices, would serve as a database for diaspora individuals, associations, and businesses, including their locations, points of contact, interest, and concerns. It could also be a resource to catalog diaspora’s various skills and capabilities that could be leveraged for Tonga’s development planning.

◦ ◦Develop Matching Funds Programs Matching funds programs provide incentives that can successfully leverage diaspora efforts and collective remittances into community development schemes. Successful matching funds program engage diaspora at all stages of project planning and implementation and encourage diaspora to feel a sense of ownership of the projects.

14Strenghtening diaspora engegament and remittances in Tonga


◦ Bolster Diaspora Tourism Tonga’s tourist industry is bolstered substantially by diaspora visiting “home” for holidays and special events. the diaspora’s continued engagement in the tourism sector presents an opportunity for future investment and growth. Diaspora tourism is relatively new in Tonga and it has not yet been addressed in a systematic manner. The Ministry of Tourism would be well advised to elaborate a marketing strategy to attract diaspora and to target their specific travel interests. Moreover, private sector actors have also not yet fully explored growth opportunities through promotions or marketing tactics that target diaspora tourists. The following are some specific recommendations to consider in order to bolster diaspora tourism in Tonga:

Conduct a deep dive into the interests, needs, and priorities of diaspora tourists. It is important to better track diaspora tourists, their travel preferences, and their spending habits. These issues might differ for diaspora depending on their country of residence.

Coordinate with consular offices to increase awareness about tourist attractions and activities geared towards diaspora, especially through the organization of more cultural events and activities. Send promotional materials for distribution.

Create a dedicated position within Ministry of Tourism focused on diaspora and their needs and priorities as tourists.

Tonga - Photo Daniela Villacres

15September 2017 International Organization for Migration (IOM)

www.acpeumigrationaction.iom.int

strenghtening diaspora engagement and …...a reduction in sending fees would mean more money in the...

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