beyondbrics

The few hundred dollars Ukrainian migrant workers send from Russia and Europe back home each month add up when multiplied by the more than a million migrant workers. After a dip in the flow of remittances in 2009, caused by the global recession, the World Bank projects a modest 2-3 per cent rebound in 2010.

The $5bn in remittances that Ukrainian migrant workers send home every year is not something to sneeze at, not least when one contemplates the massive cuts Kiev has had to take in recent months to secure a $15bn aid package from the IMF.

Despite being the most pro-western and democratic of the former Soviet republics, the Ukraine remains economically underdeveloped. Massive unemployment, especially in the rural west, has forced some 1.5m men and women to seek jobs outside the country. That is more than 7 per cent of the 20m workforce and a far higher proportion of the workforce in western regions, where unemployment is about 13 per cent.

The country’s precarious situation has been made worse by the government’s recent IMF-ordered austerity measures, including a 50 per cent increase in household gas prices two weeks ago.

For Ukrainians, a 50 per cent rise in household utility tariffs can eat up half of their already meagre incomes. Modern migrants leave their families to work abroad, sending back $100-300 a month on average, small remittances that cover the basics, and in happier times, cars, household appliances and indeed, houses. But because the money comes in small packets, wired or carried home, their importance to the overall economy is often overlooked.

Remittances totalled $4.7bn in 2009, according to World Bank figures, almost 5 per cent of the country’s GDP. “The remittances are a good thing to have,” says Oleksanrd Zholud, an economist with the International Centre for Policy Studies.

While the global recession did have a negative impact, the falls in remittances were modest and the World Bank projects a rebound in 2010 and 2011. This uptick in remittances will be small, in the region of 2-3 per cent, but in light of high unemployment and new austerity measures, will still be welcome.

One reason is that about a quarter of all Ukrainian migrants work in Russia, where the economy rebounded faster than in western developed countries. However, the downside is that earnings in Russia are considerably less than say, the earnings their neighbours in Poland make doing the plumbing in Paris and London.

Another reason is the rising availability of cheaper transfers. Western Union no longer dominates and many smaller rivals offer services for less.

It is a shame that most Ukrainians still do not trust banks and prefer to keep cash under mattresses, a hangover from years of volatility in the banking sector. The financial sector could use $5bn, making loans and credits to develop many businesses, which in turn could give a boost to the struggling middle class.

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