Economy, Domestic Economy

Obstacles to Sending Labor Force Overseas

Obstacles to Sending Labor Force Overseas
Obstacles to Sending Labor Force Overseas

Remittances to and from Iran equally grew last year, according to the World Bank’s latest Migration and Development report. This new data lays bare the difficulties the government faces in reforming the remittance regime.

Iranian expatriates sent home a total of $1.38 billion in 2014, which indicates an increase of $52 million compared to the year before. The total value of remittances sent from Iran in 2014 also increased by $50 million to $356 million.

Compared to the wider Middle East and North African region, total remittances to Iran are small. Egypt and Lebanon are the region’s largest recipients, with their extended diasporas sending home $20 and $9 billion in 2014 respectively.

Iran is also much less dependent on remittances than its regional neighbors. Remittances constitute 7 percent of the Egyptian economy but only 0.4 percent of Iran’s GDP.

In the Middle East, remittance flows come primarily from the migrant-dependent, oil-exporting countries of the Persian Gulf. Saudi Arabia and the United Arab Emirates are both amongst the largest remittance-sending countries in the world. Iran’s largest remittance donor is the UAE, with the US trailing a close second (see graph).

Interestingly, among oil-exporting countries, Iran is the largest recipient of remittances. While Persian Gulf countries are net exporters of remittances, Iraq and Libya attract smaller volumes of remittances and their economies are also less dependent on remittances than Iran’s.     

Nevertheless, the Iranian government is aiming to expand remittance inflows by stimulating the emigration of blue-collar workers, while stemming the exodus of highly-educated, highly-skilled professionals.

Recently, Ali Rabiei, the minister of cooperatives, labor and social welfare, announced that the creation of one job costs upwards of 1.5 billion rials (about $46,000). In order words, the unemployment problem can only be solved if the state has large oil revenues with which it could spur growth, or if viable, non-oil growth pick up. Western sanctions and low global oil prices have precluded both.

The Fourth 5-Year Economic Development Plan, which was launched in 2006, proposed an alternative solution to the issues of unemployment and low incomes by endeavoring to send up to 100,000 workers abroad through agreements with states and companies. This proved unsuccessful, however, as by the end of the plan in 2009 only 4,000 workers had left the country.

After that, no government program has set clear goals for sending workers abroad. The onset of tougher sanctions in 2012 has also made it much harder for Tehran to enter negotiations with foreign agents and states. Nevertheless, Rabiei has recently stressed his ministry’s preparedness to send 20,000 workers abroad. No figures have so far been released to confirm whether this has been successful.  

Babak Hashemipour, official at the Iranian Trade Association of International Recruitment Offices (SCABA) told Eghtesad News that of “the many problems prevent the Iranian labor force from entering the global labor market, the issue of sanctions is the most important.”

He argued that the cost of low-skilled Iranian labor is much higher than that in other regional countries, notably India, Pakistan and Bangladesh. On the one hand, such wage differences explain the presence of Afghans in Iran, many of whom work in the construction sector and are paid less than their Iranian counterparts.

On the other, it also explains who sends most remittances. Notably, the large remittances flows from the UAE to Iran might be explained by the historical trade ties between the two countries, rather than the presence of blue-collar workers, most of whom come from low-wage South Asian countries.

The Iranian diaspora consists not so much of low-skilled workers who sent home small amounts of money, but of highly-skilled, highly-educated and often well-paid workers, including engineers, businessmen, doctors and lawyers.

The exodus of highly-skilled workers has been labeled as brain drain, and the small share of low-skilled workers in total emigration exacerbates this picture.

The World Bank estimates that between 2009 and 2013, net emigration from Iran was 300,000. Many of these emigrants were highly-educated and were attracted by the “engineer-friendly” immigration policies of countries such as Germany, Australia and Canada, which privilege specific highly-skilled individuals.

Iran is also the source of significant flows of remittances, particularly to Afghanistan. In 2014, Afghans living in Iran sent home $262million, followed by Pakistanis and Azerbaijanis, with $62 and $17 million respectively.

The World Bank predicts that remittance flows in the Middle East might grow this year, although a weaker Euro and lower oil price might pull down the value of remittances in the region. The World Bank also warned that Saudi Arabia’s attempts to nationalize the labor force might negatively impact remittances.