Converting Remittance into Investment

– This article was originally published by Samjhana Karki in the Himalayan Times on the July 28, 2019.

The rising international labor migration in search of better economic opportunities has become one of the major features of globalization. According to the estimate of International Labor Organization (ILO), International migrant workers in 2017 constituted 59.2 percent of the entire international migrants around the globe. As a result, a significant volume of people in developing and underdeveloped economies are engaged with remittances, and are therefore enjoying the fruits of international labor mobility to improve their quality of life and escape economic deprivation.

Remittance in context of Nepal

World Bank has estimated that, in 2018, Nepalese migrant workers remitted USD 8.1 billion to Nepal. Nepal was thus the 19th biggest remittance recipient in the world. Amounting to about thirty percent of the Gross Domestic Production (GDP) as per the Economic Survey 2016/17, it is believed that one of two Nepalese receives remittance every year. This has in turn contributed to a drastic reduction in poverty levels in the country helping it tackle economic vulnerability and improve health and education status among the general Nepalese population.

While remittance has undoubtedly improved the quality of lives for migrant families by enhancing their access to food, health facilities, and education, the money is largely used to purchase consumer goods that the country imports. Nepal Living Standards Survey 2011 reported that among migrant families, 79 percent of remittance was spent on daily consumption with seven percent on repaying loans. Remittance is however not sufficiently invested in productive sectors which could in turn generate streams of revenue for the recipient families or the migrant labourers enough to emancipate their sole dependency on foreign labor.

Significant channelization of remittance towards investment in undercapitalized economy as ours can eventually contribute towards enhancing the productivity and fostering growth of the economy at large. Such developments would eventually convert into increased per capital income of the general people which currently is far below the South-Asian average. In fact, substantial increment in the per capita income of the country would ultimately create sustainable income base among the average Nepalese within the economy that may eventually become more lucrative than remunerations earned as blue collar migrant workers in Middle-East and Southeast Asian countries.

Regulatory barriers in conversion

Myriad of socio-economic and political reasons stand behind preventing adequate proportion of remittance money towards productive investment despite the prevailing opportunity to reap significant return from it. Regulatory barriers discouraging investment in enterprise establishment that directly contributes towards capital formation is at the forefront of them. Barriers such as procedural difficulties relating to enterprise registration, excessive documentation in fulfilling the requirements of multiple government agencies, lack of intra-governmental policy harmony creating regulatory confusion, and importantly lack of government avenues facilitating enterprise establishment in remote localities that are mostly dependent on foreign remittances significantly hinder this potential conversion of remittance to investment.

Way forward

While it should be purely under the discretion of the recipients of the remittances to spend it in ways that meet their personal preferences, simplifying regulatory requirements to establish and operate business enterprises can go a long way in building incentive to convert such remittance into much needed productive investment and capital formation for the betterment of the economy and the people. On such ground, regulatory improvements in terms of consolidating entire enterprise registration and operation related regulatory requirements to a single government agency, localizing government agencies entitled for business registration and other enterprise related affairs, and completely digitizing application and documentation procedure for business registration and other purposes can significantly simplify regulatory requirements related to enterprise registration among others. Such simplification of regulatory provision relating to crucial aspect of domestic investment can strongly incentivize remittance recipients or the migrant labourers to invest their savings into entrepreneurial activities than merely engage in excessive foreign consumptions.


The bottom line is that remittance in itself is not an unfortunate reality of the present context of the Nepalese economy. In fact, banking upon the earnings of the migrant workers has kept the living standard of the Nepalese people afloat amid economic stagnancy and political instability in last decades. However, the remittance is vulnerable to change in international policies and shocks especially when the major bulk of remittances are earned through migrant workers engaged in unskilled and semi-skilled jobs. Therefore, securing paths for channeling remittance towards entrepreneurial investment is crucial to improve national income of the country and create a sustainable base of income to preserve and progress the living standard of the people.