Dilip Ratha, the World Bank’s lead economist on migration and remittances, told Reuters that diaspora bonds could generate about $50 billion a year in total for developing countries, potentially helping to offset a sharp drop in foreign direct investment that is slated to fall by 37% this year.
However, such claims have met with scepticism in some quarters, given the plight of many migrants who have lost jobs and income during the crisis and as direct transfers of wages to their home countries – known as global remittances – decline sharply.
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World Bank officials warned that developing economies could suffer close to a 3% decline in economic output if consumption and investment do not rebound quickly after the coronavirus pandemic.
Ratha said the World Bank has previously worked with Nigeria and India on diaspora bond issues and that other countries have expressed interest in recent months as they scramble for resources to fight the virus and mitigate its impact.
Jay Benson, a senior researcher with the One Earth Future Foundation in Denver, Colorado, said potential issuers with large diasporan populations included Ethiopia, Somalia, Kenya, Liberia and the Democratic Republic of Congo.
Ratha said diasporan investors were typically less skittish than outside investors.
“They have a connection to a country and have a vested interest, as they might return,” he said, noting that migrants also often had greater access to land and assets.
“Then there’s the ‘feel-good factor’ of what you’ve done for your home country.”
Israel, which has raised more than $40 billion through such bonds, saw uptake soar during its 1967 war.
Benson said Nigeria’s first diaspora bond was oversubscribed by 130% and raised $300 million, though Ethiopia had less convincing results with its 2008 and 2011 bonds.
Such bonds work best if structured carefully and allow early withdrawal if investors want to back other projects in the country concerned, Benson says.
“It’s a tool that could work for any country with a significant pool of potential diaspora investors,” he said.
“People are strongly motivated by seeing this kind of investment go toward healthcare and education, and seeing that their families, their friends … back home are benefiting.”
For all the mooted benefits, however, doubts remain over the potential of diaspora bonds in the current environment.
Farouk Soussa, senior Middle East and North Africa economist with Goldman Sachs, said such bonds were most successful during a crisis in the home country, when better-off migrants were able to help, but the coronavirus crisis has hit everyone, everywhere
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“We have heard the World Bank and others warn of sharp fall in remittances and it would seem bizarre for migrants to be sending less money home but to still have an appetite to invest in diaspora bonds,” he said.
Scott Morris, senior fellow at the Center for Global Development, was also sceptical, noting that many migrants that sent wages to their home countries had also lost their jobs as a result of sweeping shutdowns in richer countries.
“It’s a gimmick,” he said of diaspora bonds.
“I think people expect too much of an initiative like that. A lot of people in the diaspora are basically living hand to mouth.”