World Bank's Global Remittance Slowdown - Why Jamaica's Remittance will slow in 2016 as Saudi Arabia Runs out of US Dollars

Christmas was looking bright as online purchases are on the rise, possibly because of increased Remittances as predicted in my blog article entitled “Jamaica Customs Agency Stats - Why US$100 Duty Free shopping coming as Jamaicans shopping online this Christmas”. 

But it looks like I’ve spoken to soon as New Years in 2016 isn't look so rosy after, if you have relatives working in Russia and Europe.  

That's because the World Bank is projecting lower than normal Remittance outflows from these countries to Developing World the Caribbean as reported in the article “Low Oil Prices, Weak EU Economy To Slow Remittance Inflows Further - World Bank”, published Sunday October 25, 2015, The Jamaica Gleaner. 

These countries’ economies are dependent on Oil which is now sinking in price below US$50 thanks to OPEC (Oil Producing and Exporting countries) trying to stop the USA extracting Oil as reported in my blog article entitled “US$50 per barrel Oil from OPEC – Why Ford Motors is predicting a bright future for All-Electric Vehicles”.

Because of the reduced US Dollars being made from Oil, these countries are restricting US dollar outflows. The result is less remittance is coming from Jamaican migrants working not only in the Russia, Europe but also the US of A and even the Cayman Islands!

But because the Oil production business is global, this reduction in foreign exchange outflows affects not only remittances but also countries that act as repositories for US Dollars.

Cayman Islands is no exception, with the JN Money Service experiencing a reduction in US Dollars available for remittance purposes according to the article “JN Money Service Hit By USD Shortage In Cayman”, Published Wednesday October 14, 2015 by Tameka Gordon, The Jamaica Gleaner.   

But does any of this affect Jamaica?

World Bank Statistics - Jamaica ok as Global Remittances are trending downwards

According to projections by the World Bank in their Migration and Development Brief published Thursday October 22^nd 2015, the outlook is gloom for the Developing World:

1.      US$435 billion in remittances will be send in 2015

2.      0.9% increase in remittances sent in 2014

Compared to 2014, the figures indicate the start of a gentle decline:

1.      2% increase in Remittance in 2015 figures over 2014 figures

2.      3.3% increase in Remittance in 2014 figures over 2015 figures

3.      7.1% increase in Remittance for the overall period from 2010 to 2013

Good to note here that this is a decrease in the originally projected figure from April 2015 of US$440 billion. Also, this decline in 2015 increase compared to 2014 increase represents a decline of 1.3 percentage points.

So is this global slowdown affecting Jamaica? Hardly, if the figures from the JCC (Jamaica Chamber of Commerce) Conference Board's Survey of Consumer Confidence published in July 2015 are to be believed.

Jamaica's US$2 billion dollar Remittance Golden Harvest - Households addicted to remittances

Jamaica isn't doing too badly, as we get some US$2 billion in remittances each year on average, moving from US$1.8 billion six years ago to $2.2 billion last year.

Jamaica's remittance inflows are pretty impressive:

1.      US$985.7 million up to June 2015

2.      4.1% increase over a similar period in 2014

3.      US$528 million for the first Quarter of 2015

4.      2.6% increase over a similar period in 2014

In fact more households are receiving remittance from abroad, with 38% of households receiving remittances for the first six months of 2015 as reported in the article “More Households Getting Remittances And In Larger Amounts”, Published Friday July 17, 2015, The Jamaica Gleaner.   

These stats for the first six months of 2015 come from the JCC (Jamaica Chamber of Commerce) Conference Board's Survey of Consumer Confidence published in July 2015 and make for interesting reading:

1.      36% of households that admitted receiving remittances in 2014

2.      38% is equivalent to 2008 remittance level

The level of Remittance is also on the increase as well:

1.      39% of consumers reporting are getting more money in their remittances in 2015

2.      33% of consumers reporting are getting more money in their remittances in 2014

3.      26% of consumers reporting are getting more money in their remittances in 2011

Households are also receiving remittance on time when requested from relatives:

1.      42% reported receiving remittances when needed in 2015

2.      38% reported receiving remittances when needed in 2014

3.      33% reported receiving remittances when needed in 2013

These remittances were received based on requests sent to relatives to quote Don Anderson, leader publisher for the Survey of Consumer Confidence, quote: “The prevailing trend continued towards fewer regular monthly transfers, with the shift towards remittances based on need”. 

This is reflected in the monthly receipts for Remittance decline, meaning persons are requesting remittance on a weekly basis as opposed to monthly to survive payday:

1.      21% reported monthly receipts for first six months of 2015

2.      24% reported monthly receipts for first six months of 2014

3.      28% reported monthly receipts for first six months of 2013

Because of the higher cost of living in Jamaica, even though Jamaicans are asking for and getting more in their remittances, they are saving less of what they get:

1.      57% never save any of their remittance in 2015

2.      34% saved some of their remittance in 2015

3.      9% always saved their remittance in 2015

4.      50% saved some of their remittance in 2008

5.      11% always saved their remittance in 2008

Ok, so what do households spend their remittance on?

According to the JCC Conference Board's Survey of Consumer Confidence, the spending patterns have remained largely unchanged over the past four (4) years from 2011 to 2015:

1.      50% on general household expenses

2.      18% on school fees

3.      38% on personal expenses

4.      34% on Utility Bills

Good to note that Utility bills have actually increased, up from 25% in 2012. But what does the future hold?

Saudi Arabia to run out of Oil - China hoarding Gold and so will Saudi Arabia in 2016

Based on the World Banks reckoning, we might see a few countries start running out of US dollars as their expenditure outstrips their US dollar inflows from Oil.

Already the IMF (International Monetary Fund) is projecting that Saudi Arabia and a few Gulf State countries will run out of US dollars in five years time unless they cut back on their expenditures as reported in the article “Saudi Arabia to run out of cash in less than 5 years”, published October 26th 2015 by Matt Egan, CNN Money.

Still, the IMF report may be a bit hasty, as Saudi Arabia is already diversifying their economy away from Oil. Efforts have already begun to bear fruit form them in the form of Venture Capitalism, tourism, Real Estate Investments and Nuclear Energy.

But ultimately the lower oil prices regime being implemented by OPEC will affect the US of A dollar.

Lower Oil prices means that they cannot use Oil as an investment hedge and as investors will have to wait until the price rises again. That means they'll have to depend on Gold as a standard to prop up the US Dollar. 

A weaker dollar will be the result as Gold prices are projected to fall as China is importing more Gold from Hong Kong, building up their reserves and thereby lowering its overall value as noted in “China is buying Gold again and that's not a good sign for its stock market”, published 27th October 2015 by Ben Moshinsky, Business Insider and “China Gold Imports Climb on Pre-Holiday Buying, Lower Prices”, published October 27, 2015 by Bloomberg News.

With no other valuable commodity against which to value the US Dollar, in the next five years, the US Government will have to restrict US Dollar outflows in the form of Remittances. That means Jamaica’s remittance boom will soon be a bust as the US Dollar shrinks in value and the US Treasury tries to hold on to its dollars to keep its currency from falling with the price of Gold!

This will start to occur by 2016 as Saudi Arabia and the Gulf States will also start hoarding Gold in a bid to push up the value of their currency, thus decreasing the US Dollar in the process, which is based on the Gold Standard!