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Under the Banyan Tree – Asia remittances: a quiet cost from the Gulf
1 Plays2 seconds ago
As Middle East tensions drag on, Herald sits down with Asia Economist Ines Lam to discuss how a slowdown in non-oil industries is affecting Asian households half a world away.
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Transcript
Introduction and Episode Focus
00:00:10
Speaker
Hello and welcome to Under the Banyan Tree. I'm your host, Harold Wendel in Hong Kong. And on this week's episode, we have a completely different angle on the ongoing fallout from the closure of the Strait of Hormuz. We're going to look what it means for actually a lot of Asian people, Asian foreign workers and crucially, remittances.
Guest Introduction: Ines Lan
00:00:27
Speaker
To discuss this, we have Asian economist Ines Lan. She's the guest here in the studio today.
00:00:33
Speaker
From HSBC's Global Investment Research, this is Under the Banyan Tree, where we put Asian markets and economics in context.
Impact on Asian Migrant Workers
00:00:50
Speaker
The Middle East is a critical region for migrant workers from Asia and making money to send back home is a very high priority for them. Around 75% of overseas workers from Bangladesh and Sri Lanka are based in the Gulf, as well as 10 million of the 15 million Indian nationals working abroad. And a million workers from the Philippines, where remittances make up close to 10% of GDP. 10% of GDP, that means it's one of the biggest industries actually for that particular country.
00:01:19
Speaker
Asian workers, they work mainly in non-oil sectors in the Middle East. Think about construction, tourism, like in hotels, real estate. and There are early signs that the closure of Australian Hormuz is really impacting these people.
Effects on Non-Oil Sectors
00:01:32
Speaker
It's time to bring in Ines Lam, our Asian economist. Ines, welcome to the podcast. Hi Harold, thank you for having me on the podcast. Good. So Ines, why is the closure of Hormuz important to these remittances?
00:01:44
Speaker
Well, I feel that a lot of the economic analysis on the closure of the Strait of Hormuz has been done on the energy sector, but not much has been talked about for the non-oil sector, which is very significant for the labor force in Asia. For example, for tourism, the arrival numbers to the Middle East have been quite sharply affected. would think so, because flights have been canceled. Exactly. I know hotel rates have dropped as an indication that...
00:02:13
Speaker
and then shops are closed, or even in construction in in real estate, a lot of the projects have paused or delayed. um Construction could probably come back next year because a lot of the infrastructure are destroyed, but for now, a lot of the economic activity is on hold. Yeah, so that economic activity is on hold. These people very often immediately don't
Remittance Slowdown from the Philippines
00:02:36
Speaker
get paid. It's not that they have a contract, so then they cannot remit that money back. So remittance probably already slowed, right?
00:02:43
Speaker
Yeah, we have the remittance growth number from the Philippines for the month of March. And it's the slowest pace since early 2023. So you're right. I think the impact is already been seen. It's already been felt. And this is another way Asia is being
Impact on Bangladesh and Sri Lanka
00:03:00
Speaker
impacted. and Which of all these countries in Asia have most exposure to this?
00:03:04
Speaker
So among the five economies that we looked at in this report, ah Bangladesh and Sri Lanka are the two most affected. More than three quarters of their migrant workers go to the Middle East. And if we measure remittances as a share of GDP, it's about 3% for each of the economies. Okay. And how does that then impact the economies? As you already said, less spending for consumption. It probably impacts also of things like exchange rates maybe.
00:03:33
Speaker
Yeah, at the macro level, I think the impact on the exchange rate is quite significant because these economies, they have not very diverse export base. For for example, Bangladesh has a large garment sector. But in the current environment, I believe that ah exports will slow ah because of a hit to global warming. global consumption and for Sri Lanka they also have a large textile industry which is very exposed to a slowdown in global growth. A lot of them go to the Middle East but I would imagine consumption in the Middle East was slow. yeah But the problem with these sort of economies as you rightly say, they got one product that's textiles or maybe tea in certain places. and
00:04:15
Speaker
And then a couple of other things around it. But if that slows, then there's not too much to work on it. If I'm not mistaken, the the tariffs that the US imposed on all these different countries about a year ago, Bangladesh was really hard hit by that, right?
00:04:26
Speaker
by ah by By textile tariffs as well. So Sri Lanka and Bangladesh are the impacted the most. What's the second sort of group of countries that are being impacted?
Resilience of India and the Philippines Economies
00:04:36
Speaker
The second group includes India and the Philippines. Let me start with India. So India is the world's largest recipient of remittances. It receives about 16% of global remittances. So it's huge. Wow.
00:04:54
Speaker
However, because India is a much larger and more diversified economy, the impact of this on India, it's relatively smaller if we compare it to Bangladesh and Sri Lanka. Okay, and the Philippines is also quite big, right?
00:05:10
Speaker
I mean, the Philippines is known for having a large population of migrant workers, and it's the world's third largest recipient of remittances. And given the size of the Philippines, I think it's quite remarkable that remittances is so important to its economy. ah But for the Philippines, the impact of this is, again, relatively small because the Philippines, in fact, has a very diverse migrant base. Yeah. So apart from the Middle East, the Philippines sends a large number of workers to East Asia, to North America, to Europe. So it acts as a cushion or a buffer against a slowdown in the Gulf. There's a lot of people working on ships, cruise ships, tanker ships, and these sort of things. There lot of Filipinos as well. That's another source of sort of money that that can be remitted. Yeah. It does also come, I'm just thinking about it when you mentioned this, there's a lot of ladies, for example, in Hong Kong, Singapore, Taiwan, that become a domestic helper helping elderly people in the region, which is good for these elderly people. But of course, it means that they are not with their children. So it it has some social disruption, I guess, as well, right? It's another sort of cost that we should actually think about.
00:06:22
Speaker
yeah absolutely. Yes. So India and Philippines are quite impacted. And you're a third category. Which one
Indonesia's Modest Impact
00:06:28
Speaker
is that? The third category is Indonesia. yeah um Indonesia also sends quite a large number of workers overseas for employment. But overall speaking, the share of them in the Middle East is not that big. So I would say that the impact is quite modest for Indonesia.
00:06:45
Speaker
Yeah, yeah. And of course, it's a much larger country, very diversified resources that they export, like nickel, I'm thinking about, these sort things. and So the impact on that is not so much. But still, I know, for example, stories in Java, Eastern Java, whereby teachers at schools quit to become a domestic helper in Hong Kong because they make more money doing that than being a teacher at school. So again, it comes with all sorts of costs. It means that they are not teaching. That is an economic cost. You could say they're not with their families. That can be an economic cost. So um yeah, we we can only look at the numbers that we have, but I think the problem might be even bigger than we sometimes think it is.
Future Challenges and Recovery Scenarios
00:07:23
Speaker
Definitely. I think for like individual families who depend ah on remittances as their main source of income, I think the impact is is really big. It's awful. It's really
00:07:43
Speaker
So Ines, just looking forward from here, assuming that this conflict in the Middle East stabilizes, there will be some construction that comes back and tourism will come back, but maybe not as much as what we've seen in the past. So that could be bad for migrant workers. You you might not need as many anymore. and They will have to go back. How is that going to work out for them?
00:08:04
Speaker
I think for the Middle East, the whole region, reconstruction can restart quite soon, as soon as there's a you know a settlement between the US and Iran, yeah because a lot of infrastructure has been destroyed. And I think a lot of the governments will have strong incentives to rebuild their countries.
00:08:23
Speaker
But for other sectors and non-oil sectors, I'm afraid the drag could be longer. It could be carried over. It could take years before that comes back to the levels that we've seen the US. in order for you know foreigners to have the confidence to go back, not only to visit, but you know Dubai or Abu Dhabi, there are a lot of expats who live there. so So now there's a matter of confidence whether people want to go back to these countries. And it's so much uncertainty here. So I think for for these Asian economies, um it's very unclear how labor migration will you know recover.
00:08:59
Speaker
But do you think there might be other opportunities emerging? You talk about new corridors and for migrant workers. What do you
Opportunities in Aging Asian Economies
00:09:07
Speaker
mean with that? Yeah, I was referring to the aging economies in Asia. I see that quite a number of them are broadening or opening up their countries for more foreign workers to work in healthcare, care to work in hospitals. because Elderly houses. you know Yeah, there's a huge demand for foreign workers for these sectors. So I think these could be new opportunities for Asian economies. So what you're saying is that there might still be a lot of construction workers needed from, say, Bangladesh and Sri Lanka in the Middle East. But the people that worked in hotels and these sort of places, they it might be wise for them to look for opportunities in Japan, Korea.
00:09:49
Speaker
I'm just naming the countries that are really aging at the moment. Of course, China as as well. And see if they can find maybe opportunities there. Is that fair to say? Yeah, sure. And I think it it really comes down to the governments who need to be proactive in... Stimulating this and facilitating this. Yes, yes. yeah yeah This has been really insightful, Ines, because I think it's a very different sort of approach and angle to looking at what happens in the Middle East and how that impacts Asia, aside from, as you mentioned earlier, just looking oil and fertilizer.
Conclusion and Call to Action
00:10:19
Speaker
This is another way the region is being reshaped in the years ahead. So thanks a lot for that, and thanks for coming in and... enlightening us on this particular issue, Ines.
00:10:28
Speaker
Thank you, Harold. And that brings us to the end of this episode of Under the Banyan Tree. Thank you for joining us and please do give us a follow if you haven't done so already. You can find us wherever you get your podcast. And on that note, if you're listening on YouTube, we'll be moving the podcast to a new channel very soon. Search for HSBC CIB for a new home and subscribe to stay with us.
00:10:52
Speaker
From all of us here in Hong Kong, take care till next week.