Bringing big money home: Vietnamese guest workers check in at Tan Son Nhat International Airport in HCM City

Overseas remittances are a precious financial resource for Vietnam, but there should be attractive policies to attract this resource for economic development

Over the past two years, Bui Van Quang, a Vietnamese mechanic working in South Korea, has sent an average US$15,000 annually to his family in the rural area of the northern province of Hai Duong. The sum has been used to repay debt, buy a piece of land and gold for savings and help some relatives.
Quang is among some 400,000 Vietnamese guest workers abroad. Besides remittances sent home by these workers, Vietnam also receives a large amount of remittances every year from overseas Vietnamese. According to the Vietnam Social Science Institute, there are some four million overseas Vietnamese living in 100 countries and territories worldwide.

Big money

Remittances to Vietnam have increased steadily, while other sources of foreign capital like foreign direct investment (FDI), foreign portfolio investment and official development assistance (ODA) have not been stable. In 1999, remittances made up 4.2% of the gross domestic product (GDP). The ratio increased to 7.7% in 2010 when the GDP value was estimated at over US$100 billion.

Figures from the State Bank of Vietnam (SBV) show that remittances to Vietnam is about US$2.5 billion in the first quarter of this year, US$2 billion in the second quarter and US$2.5 billion in the third quarter. SBV estimated that the amount for the whole year could reach US$8.5 billion. Last year, remittances amounted to US$8 billion as compared with US$9.6 billion in FDI and US$2.6 billion in ODA. This big amount of remittances helped offset nearly 50% of trade deficit and reduce reliance on foreign funds, especially foreign aid.

The official figure for remittances obviously does not include cash and kind sent to Vietnam via channels other than the banking system. According to the SBV, this amount is equal to at least 30% of the remittances sent through the official channel.

According to a report by the World Bank (WB), Vietnam ranks 16th among countries that received the most overseas remittances in 2010. In Southeast Asia, Vietnam ranks second after the Philippines, which received around US$21.3 billion. Remittances sent to Vietnam are mainly from overseas Vietnamese in the U.S., Canada and France. However, most recipients are well-off families in urban areas, especially HCM City. The city is the biggest recipient of remittances in Vietnam although it does not have a large number of guest workers abroad.

In recent years, remittances to cities and provinces that have a large number of guest workers abroad have increased rapidly. Figures from the bank’s survey show that remittances sent to such cities and provinces are nearly equal to the local GDP. Vietnam’s labor export has been expanded in recent years. The main export markets are Asian countries and territories, especially Taiwan and Malaysia.

The bank has forecast that the remittances may continue to increase in the years to come if the global economy maintains the pace of recovery.

Investment channels

Most remittances to Vietnam are used for investment in real estate, and the rest is for bank deposits and purchase of durable goods.

In a conference on international migration held in Hanoi in June, two WB’s experts released a survey of over 4,000 families that received remittances in Vietnam in 2008. The survey shows that the remittances helped the recipients increase spending on land and housing. The experts also estimated that 48% of remittances over the past five years went to real estate. A small part was used for investment in services and for travel. “Remittances have an insignificant impact on poverty reduction, as the money is sent mainly to well-off families and is not for spending,” the survey said.

A leader of a commercial bank that helps pay 20% of the total remittances to Vietnam every year said most of the remittances are used for real estate purchase. Part of the amount is for trade payment, as recipients can get the money very quickly, within just 12-24 hours, while it takes between one and two weeks to settle payment through banks. Another part is deposited at banks to enjoy high interest rates for foreign currency deposits. For example the interest rate for deposits in U.S. dollar at banks abroad is only 0.25-0.5% per year while the rate in Vietnam reached 5% earlier this year. According to DongA Bank, remittances to Vietnam in the first half of this year surged 20% from the same period last year and the rate of U.S. dollar deposits at the bank rose 10-15% due to the high interest rate for U.S. dollar deposits.

However, a big concern is that a large amount of remittances this year has not been deposited at commercial banks but has been sold to the black market, which offers an exchange rate higher than that quoted by banks. This foreign currency source has exerted a big pressure on the exchange rate, increased dollarization in the economy and posed a headache for market management authorities.

According to big remittance payers, such as Sacombank, DongA Bank, ACB, Agribank and Vietinbank, only 10-15% of the recipients deposit or sell the foreign currency they receive to the banks. If only 50% of the remittances is deposited or sold to banks, the pressure on foreign currency shortage can be eased. Bankers hope that SBV’s Decree 95 on foreign currency management with strict penalties for violators issued recently can help direct more remittances to their banks.

However, it needs more long-term solutions to attract this precious source of foreign currency. Although the policy and procedure regarding overseas remittances and foreign currency management are sufficient, reality shows that they are not favorable. For example, people can sell foreign currency to banks easily, but when they need foreign currency for medical treatment, overseas study or travel, it is not easy to buy the money from banks and the procedure is complicated.

In addition, sustainable investment channels to attract overseas remittances are not available. The procedure for house purchase by overseas Vietnamese is still complicated. Policies to attract remittances to sectors that badly need investment such as education, healthcare and services are not available. Incentives to encourage recipients of remittances to invest in businesses to create jobs and contribute to economic development are still nowhere to be seen.

The Saigon Times Daily