REMITANCES REMAIN A STABLE SOURCE OF FUNDING FOR

UNCLAS SECTION 01 OF 04 KINGSTON 001062

SIPDIS

STATE FOR WHA/CAR/ (WBENT),WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR L LAMONICA

E.O. 12958: NA
TAGS: ECON EFIN JM
SUBJECT: REMITANCES REMAIN A STABLE SOURCE OF FUNDING FOR
JAMAICA

REF: 04 KINGSTON 000050

--------------
SUMMARY
--------------


1. (U) A steadily increasing number of Jamaican
breadwinners no longer live in Jamaica, choosing instead
to work overseas and support extended families through
payments wired home from abroad. Remittances sent by
overseas Jamaican workers remained the most prominent
source of external funding for Jamaica in 2004. At the
end of the year, remittances stood at USD 1.5 billion, up
15.5 percent. The buoyant remittances continued to be
underpinned by increased labor migration and the entry of
more players into the remittance business. Traditionally,
remittances have been used to satisfy basic needs, but
technological advances and other initiatives have
increased the amount going toward growth and development.
Despite the obvious immediate benefit to the recipients,
some fear that remittances can foster idleness and provide
an avenue for money laundering and terrorist financing.
This has prompted the GOJ to initiate legislation to
regulate the industry. Notwithstanding, remittances are
set to expand as a new wave of emigration intensifies due
to difficult economic and social conditions in Jamaica.
End Summary.

--------------
REMITTANCES CONTINUE TO GROW
--------------


2. (U) A steadily increasing number of Jamaican families
are dependent on the supplemental money sent home by
family members who work overseas. Total remittances to
Jamaica increased by 15.5 percent in 2004 to reach USD 1.5
billion or 16.7 percent of GDP. At this level,
remittances remained the country's largest source of
foreign exchange earnings, eclipsing tourism receipts for
a second consecutive year. Remittances for 2004 were
about 110 percent of merchandise exports and 200 percent
of Foreign Direct Investment (FDI). Remittances have also
remained one of the most robust sources of foreign
exchange for Jamaica, averaging USD 1.1 billion and
increasing by 85.7 percent between 2000 and 2004. Indeed,
a Jamaica Chamber of Commerce (JCC) survey conducted in
the first quarter of 2005 found that almost 40 percent of
all Jamaicans receive remittances, with 51 percent of
these recipients reporting an inflation-adjusted increase
in funds relative to three years ago. This performance is
not surprising given that Jamaicans continue to emigrate
in response to economic opportunities abroad and economic
and social ills at home. Jamaica's Ministry of Foreign
Affairs and Foreign Trade estimates that over two million
Jamaicans now live overseas, with over 750,000 in the US,
500,000 in the UK and 400,000 in Canada. These estimates
include Jamaicans living abroad both legally and
illegally.


3. (SBU) Jamaica remains the highest per capita recipient
of remittances in the Western Hemisphere and possibly the
world. At the end of 2004, per capita remittances were
about USD 550. Executive Director Joan-Marie Powell and
Marketing Manager Noel Greenland of Western Union (WU) in
Jamaica told emboffs that working-class Jamaicans remit,
on average, about USD 187 per transmission to family
members for expenses such as food, school fees and
clothing. This is consistent with the findings of the
JCC's survey, which showed that 21 percent of recipients
use the money for school fees, 37 percent of recipients
use it for utility bills, 39 percent for general household
expenses and 42 percent for other personal expenses. The
study also found that at least 28 percent of recipients
receive remittances every month, with older people most
likely to receive these monthly sums. Remittances also
make up a significant portion of the incomes of many local
households and serve as a social safety net, helping to
alleviate poverty. According to Senior Manager of Jamaica
National Building Society (JNBS),Leesa Kow, over 80
percent of remittances handled by her company go to women,
who account for the majority of the country's unemployed
and poverty stricken.
--------------
NEW CHANNELS OPENING UP
--------------

4. (SBU) The remittance business in Jamaica was
traditionally dominated by Jamaican commercial banks, but
in recent years transfer companies and building societies
have captured most of the market by intensifying their
promotional efforts and widening their network to
facilitate the smooth and expeditious transfer and
collection of funds by clients. When asked about the size
of the market commanded by WU, Powell and Greenland, in an
obvious attempt to downplay their dominant position, said
they strongly suspected WU was the largest player, but
were not certain due to the lack of data. After some
prompting, Powell admitted that WU was indeed the largest
player, accounting for about 65 percent of the business.
She hastened to add, though, that they did not want to be
accused of monopolizing the market and driving up costs.
Greenland then stated that no single entity could
monopolize the business, since barriers to entry were so
low. When asked the same question, Kow proudly told
emboffs that JNBS controlled about 25 percent of the
business, much of which it captured from WU due to lower
costs and technological advantages.


5. (SBU) Almost 60 percent of Jamaica's remittances come
from the US, mostly from Florida, Connecticut, New Jersey
and New York, home for most US-resident Jamaicans. The
United Kingdom, Canada and the Cayman Islands are also
major sources of remittances. Collectively, these four
diaspora communities account for over 95 percent of the
total remittances to Jamaica. Greenland told emboffs that
remittances from the US have been leveling off in recent
years and the UK had become the new growth market, a
situation he attributes to a new wave of emigration to
that country.

--------------
COSTS AND COMPETITION
--------------


6. (SBU) Despite the buoyancy in remittances, the cost
for sending money to Jamaica remains one of the highest in
the region. When the WU representatives were told the USG
was concerned about the high cost for remitting money to
the region, they said they were aware of the concerns.
They then opined that the USG interest was actually coming
from lobbyists for American commercial banks, which wanted
a share of the lucrative business, despite neglecting it
years ago. Powell said American-based banks had
traditionally shied away from the business because of the
low returns relative to paperwork. She pointed to
Citibank Jamaica, the previous agent for WU, which
subsequently shed the business in an overhaul of its
operations. Powell then told emboffs that their costs had
declined by six percentage points to nine percent since
discussions on cost cutting measures began. Greenland
added that high interest and telecoms costs remained two
of the biggest obstacles to reducing prices even further.
In a clear swipe at the perceived rivalry with banks,
Greenland stated that banks were not the most convenient
outlets for remittances in Jamaica, anyway, due to their
limited reach, short opening hours, and burdensome
paperwork.


7. (SBU) Notwithstanding the decline in the cost for
sending money through the dominant player, WU, other
actors remain far more competitive. National Commercial
Bank offers a low cost option through Senvia Money
Services for prices ranging from 0.25 percent from the
Cayman Islands for up to CD 2,500 (USD 3,050) to one
percent from the UK for up to 500 pounds (USD 937). Kow,
who is also a former employee of WU, told emboffs that
JNBS has always been at least 15 percent cheaper than the
competition, although the high cost of new technology
investment has slowed the pace of price reductions. USAID
and JNBS have also initiated a project to further reduce
the cost of sending money to Jamaica. The company has
introduced a swipe card technology that will improve
efficiency and increase convenience for customers. Over
21,000 people have signed up to use this facility, of
which about 60 percent are women. The introduction of
cards has already reduced costs by five to ten percent.
These savings will be channeled into an educational fund
to purchase computers for schools in rural communities
during the project.

--------------
THE EFFECTS OF REMITTANCES
--------------


8. (SBU) Remittances impact significantly on Jamaica's
economy, as they represent a stable source of foreign
exchange, which contributes to the country's reserves. In
addition, the practice creates a business that adds to GDP
and provides a source of employment. Remittances also
augment some individuals' incomes, which increases
disposable income and, by extension, the amount of funds
available for savings and investment. While the vast
majority of remittances are used for consumption, this
money still generates a positive multiplier effect for the
rest of the economy. The recently released JCC report
also showed that at least 63 percent of Jamaicans
sometimes save some of their remittances, while the
remaining 37 percent never save any of their remittances.
However, the economy could benefit even further if a
larger portion of the flow could be leveraged for savings
and development. Recognizing this fact, a remittances
program was formulated in 2004 as part of former
Ambassador Cobb's Building Bridges, IPLEDGE Initiative
(REFTEL). Projects under IPLEDGE were designed to enable
corporate sponsors to provide educational supplies to
needy schools. The first project was launched by WU, in
partnership with USAID. These types of initiatives are
apparently set to continue, as Greenland told emboffs that
plans are far advanced for WU to pump another USD 200,000
into primary education. The company has also started to
offer electronic options and will soon allow recipients to
access their funds from savings accounts. This, combined
with the JN/USAID initiative, should increase the pool of
savings available for investment.


9. (SBU) Despite many virtues, remittances also carry
their fair share of disadvantages. Most of the returns
from remittances are the end result of the emigration that
took place in the 1970s and again from the late 1990s to
the present. Executive Director of the University of the
West Indies' Development and Endowment Fund (UWIDEF),
Nicole Sharpe, told emboffs that a large number of the
UWI's almost 80,000 graduates now reside overseas. When
asked about the impact of this brain drain on Jamaica,
Sharpe said, "it is a Catch 22 situation because there are
just not enough opportunities here". "There is a definite
need for more entrepreneurs and that is why we are looking
forward to developing a leadership institute to develop
entrepreneurs", Sharpe continued. Sharpe said that the
"remittance culture" in Jamaica also encourages idleness,
thereby providing a disincentive for some people to work.
The JCC study found that 46 percent of Jamaicans in the 18
to 24 age group, the most in any age cohort, receive
remittances. This age cohort also accounts for almost 30
percent of Jamaica's unemployed. The effects can already
be seen in the corporate sector, as aluminum processor
Jamalcoa has expressed concerns about the availability of
skilled labor to carry out its expansion plans.

--------------
NEW REGULATIONS ANTICIPATED
--------------


10. (SBU) The possibility of money laundering and
terrorist financing has also prompted the GOJ to pass
legislation to regulate the operations of money transfer
and remittance agents and agencies. This is welcome news
for Greenland, who thinks regulation will make information
more accessible. "Regulation of the business will also
rid the discussions of innuendos which can jeopardize
reputations", Greenland continued. When asked for her
opinion on the pending regulation of the business, Kow was
not as upbeat. She said that, if done properly, it could
help, but from all indications enough research was not
being done by the GOJ. "If the first draft of the Act was
implemented, it would have killed the business", Kow told
emboffs. "Some of the regulations would even put workers
at risk", she continued. She said this has pushed the
sector to form an association, which is now working with
the GOJ. Kow anticipates heavy investment in technology
to comply with the new reporting regulations, which will
result in increased cost of doing business. This, she
opined, could stymie ongoing cost reduction measures.

--------------
COMMENT
--------------


11. (U) Remittances are expected to remain strong over
the short to medium term, given the need for lower cost
skilled and unskilled workers in the US, Canada, the UK
and the Cayman Islands. The slow-growing and aging
population in developed countries will also increase the
need for migrant labor. Continued economic stagnation and
crime at home will also push Jamaicans to countries where
greater opportunities abound. However, serious concerns
remain about the impact of emigration on Jamaica's
development.


12. (U) Despite attempts to reduce expenses, Jamaica
remains a high cost destination. However, the renewed
interest being shown by banks and other low cost players,
combined with improved technology by companies like JNBS,
should help to drive costs lower in subsequent years.
While Jamaica lags behind countries in Latin America in
terms of leveraging remittances for development, much
progress has been made in recent years. This should
continue as lobbying efforts intensify at the
international level. JNBS, in addition to its education
project with USAID, has submitted a micro-business and a
rural development project to the Canadian International
Development Agency (CIDA) for joint funding. However, in
order for Jamaica to be able to use remittances as a true
development tool, it must shape a saving and long-term
investment culture. Recipients have to be encouraged to
view remittances not as an end in itself, but the means to
economic independence. End Comment.

TIGHE#