Effect of Arab Revolt on OFW Remittances

What will be the effect of the Arab Revolt on the remittances of OFWs? Well, in short – VERY LITTLE. And here are a number of reasons why:

Small OF Populations. The revolts have so far been in countries with relatively small OF populations. Tunisia, Libya, Egypt, Yemen and now Syria have few OFs. There were more OFs in Bahrain and Oman, but in Oman’s case the problem seems to have been short-lived. The Bahrain problems have not caused an exodus of OFs. If big protests take place in Saudi Arabia (which has at least 800,000 OFs) it will be only then when we should worry about OF remittances.

OFs Don’t Flee. OFs don’t immediately flee when there is conflict. No Filipinos have left Yemen since their troubles started. In Libya, the majority seem to have decided to stay on, despite the civil war. And when they do flee, they try to get another job in the region. I remember when Kuwait was invaded (in 1990); many of the Pinay domestics there evacuated with their employers to Europe, and they found other jobs there.  OFs don’t want their deployment fees to go to waste; and many also don’t want to abandon their jobs, since this may result in their being blacklisted (or so they fear).

War Premium. OFs who stay on in the middle of conflict may even earn more because of war premiums. During the Iran-Iraq war of (1980-88) many Filipino seamen collected 4 times their regular pay when their ships entered the war zone. Of course, many also died during this war, because many ships were torpedoed, but that’s something else. It seems that nurses in Libya are now earning 3 times their normal pay because of the war.

Post-revolution Boom. After the revolution – whether or not the revolution wins – economic development seems to favor the hiring of more OFs. If the tourism industry is stimulated, this would mean more Hotel/Restaurant workers would be needed – and this almost certainly would include Filipinos. If health care services would be expanded, this would mean employment for Filipino nurses. If a construction boom ensues, they would need Filipino construction workers.

Locals Work for Government. In the Gulf, local workers aspire to work for the government; leaving the bulk of private sector jobs to migrants of all kinds. A lot of these migrants come from non-Gulf countries like Egypt, Jordan or Lebanon; but they also include workers from places like the Philippines. Filipinos will always find work in the private sector there, since we are known to be good workers. Some companies even advertise the fact that they have Filipino workers – putting up signs saying that “We have Filipino workers”. Filipinos are the last to be laid off, and the first to get hired. Our place is assured.

Peso will appreciate after May elections

The way things are going now, it seems that the peso is set to continue its upward trend even after the May elections in the Philippines. Why?

Remittances
Remittances again. May-June is peak time for remittances, especially for school expenses, so the peso is sure to gain from this. Add to this the government plans to float $500 million of bonds especially for OFWs, partly to cover the budget deficit. This is an additional $500 million that will be “remitted” at this time.

Elections
No matter who wins in the presidential race, the vice-presidential race seems to have been won already by Mar Roxas, who is viewed internationally as the most business-friendly vice-presidential bet. And Noynoy Aquino and Villar are both perceived to be business-friendly. Foreign investors now though would be holding back on the off-chance of an Erap Estrada or Richard Gordon victory, who almost promise to get the government deficit to skyrocket.

After the elections, foreign investors will be more confident in the Philippine economy and will increase their investments.

Carry over
The prospect of an appreciating peso feeds on itself. With the improving world economy and the end of the Greek financial crisis, the dollar is set to decline against most of the world’s currencies. This,  in turn will push speculators to place investments where it pays more in interest than the US (the Philippines is one of those places). This will show in an increase in “portfolio investments” by foreigners. Which will help to strengthen the peso, and make the effective interest rate differential even bigger, pushing the peso ever stronger.

Another effect is the retention of dollars by foreign companies in the Philippines. If the peso is perceived to be strengthening, foreign companies tend to hold on to their profits (in pesos) for as long as possible, in the hope of getting to remit them later for more dollars. This would also be a self-perpetuating trend, with more companies doing this with time, as they see that other companies are taking advantage of this trend. This, in turn strengthens the peso, etc. Of course, the companies will need to repatriate profits eventually, but they will do it at the end of the year – and cause the peso to weaken around December. But that is still a long way off.