The Rise Of Remittance

REMIT AN OPPORTUNITY

The current volatility in currencies is generating unique opportunities in the remittance market, while creating a new market of workers who remit purely for currency leverage.

Promoth Manghat, vice president-global operations of UAE Exchange – which has seen growth rates in the range of 15-18 per cent – says: “Due to turmoil created by negative factors in the market, customers have the opportunity to remit money to their home countries at historic lows. They have taken advantage of this opportunity, and this trend has been encouraged by good savings deposit schemes offered by various banks.”

Foreign Exchange and Remittance Group (FERG) estimates that last year alone UAE expatriates sent home about Dhs120 billion, or Dhs10 billion every month, with approximately 3.5 million remittance transactions per month.

Since the start of the year, there’s been an increase of 10 to 15 per cent for most exchange businesses, so experts anticipate that currently almost Dhs15 billion a month is being remitted.

Jean Claude Farah, senior vice president, Middle East and Africa, Western Union, says: “In the quarter, Western Union’s consumer money transfer business, which represents over 80 per cent of company revenue, delivered solid three per cent constant currency growth with consistent margins. MENA, Asia Pacific and Latin America, and online money transfer performed well, more than offsetting the impact of consumer slowdowns in Southern Europe and some expected softness in certain countries. Overall we are on track for our full year financial outlook.”

But everyone is not quite so optimistic.

“After the initial spike in remittances, the flow has steadied a bit. We have just entered the second half of 2012 and so far we have not seen a dramatic difference in remits,” cautions Manghat.

In this uncertain environment, it is imperative for expats to be aware of the future trend for currencies, especially their home currency, so they are able to maximise opportunity without getting their fingers burned. So what are the expectations for major currencies going forward?

According to Debajyoti Ray Chaudhuri, CEO, State Bank of India, “The outlook for the euro looks bleak as the Eurozone crisis continues to unravel. But strong support from Germany and political statesmanship from Eurozone leaders could lead to a recovery in the fortunes of the euro.”

The US dollar strength is likely to persist into year-end, aided by relative economic outperformance and limited Fed easing, according to Barclays.

Max Knudsen, chief market strategist, ADS Securities says, “If current trends continue, then the yen and pound sterling are showing small changes on the year, but I expect that the long-term bullish sentiment in Australian and Canadian dollars will continue to support these currencies.”

The currencies of emerging economies have softened recently and are expected to remain bearish, unless their governments take the necessary course to strengthen their fundamentals. In this regard, remittances actually aid currency appreciation as they prevent excess liquidity in sending countries.

Analysts believe that the rupee could extend its relative underperformance unless the government and Reserve Bank of India (RBI) deliver on reform agenda and maintain the steady flow of foreign inflows into Indian equities and bonds.

Al Ansari adds, “As far as the Indian rupee is concerned the worst seems to be over and it should settle at the present level and maybe even strengthen in the short to medium term.”

The peso is also expected to be under modest appreciation pressure, primarily due to the Philippines’ current account, which is arguably one of the most resilient on account of worker remittances ($20 billion in 2011) and makes up the bulk of transfers.