The approximately 230 million people who live outside their country of birth is a global diaspora that represents a potentially powerful network for the global development industry.
The week of Oct. 11-17 has been designated Global Diaspora Week by the U.S. State Department and its various civil society partners in honor of that community. This year’s unofficial theme is partnerships and the networks that exist to leverage diaspora finance for development.
“We’ve gone from an era where power lived almost exclusively in old establishment hierarchies to an era where power lives in networks,” said Secretary of State John Kerry at the State Department’s summit to launch Global Diaspora Week 2015.
By the numbers
If it were its own country, the global diaspora community would be the world’s fourth largest. The roughly $581 billion in remittances from the diaspora community every year is 16 times greater than annual official development assistance flows, according to the U.S. Agency for International Development. A mere fraction of that would be enough to finance a year’s worth of official development projects.
But USAID calculated that just 30 percent of those remittances are put towards savings or investment purposes such as education, buying land or starting a new business. Instead, most is used for basic consumption.
It’s more than just remittances though. An alternative source of diaspora finance are the millions of entrepreneurs who are either repatriating to their homelands to start new businesses or those setting up new ventures back home from abroad. The reasons are common — local market knowledge combined with new business skills; exposure to new technologies; or simply an empathy to do good back home.
Yet those drivers are often stymied by a number of challenges. Diaspora entrepreneurs often face a series of obstacles:
• A lack of acceptance — while diaspora entrepreneurs may have local knowledge, some entrepreneurs face discrimination or are criticized for lecturing people or being condescending. • No clear government strategy — many developing country governments lack financial incentives or regulations such as tax breaks for diaspora-led startups. It is often unclear for diaspora entrepreneurs which government agency to approach. In many cases, governments don’t have a clear definition of a diaspora member, several entrepreneurs noted at a roundtable dialogue at the recent event. • Bureaucracy and corruption — those diaspora entrepreneurs that do find the right government channels to start a business often run into red tape and corruption. It can create what one participant described as a “schizophrenic” approach to doing business and leads to questions about which set of ethics and governance rules to abide by. • Lack of infrastructure — in either digital communications, physical infrastructure to move goods and services or a paucity of commercial partners, local market limitations can hinder any startup venture.
This year’s Global Diaspora Week will aim to address some of these challenges as well as the ongoing question of how to finance early stage diaspora-led enterprises.
New online tools that leverage the power of crowdsourcing and social networks are emerging to bridge financing gaps, especially for entrepreneurs.
Some initiatives are already in place but there is room for more. There is the Indian Diaspora Investment Initiative — a partnership between USAID and the Calvert Foundation that seeks to mobilize funds from the Indian diaspora. USAID’s Development Credit Authority is also providing a loan guarantee to support Homestrings, an online investment platform that promotes impact investing among diaspora communities.
Partnerships like these that aim to address challenges in linking diasporas to development are now a part of the conversation in ways that they haven’t been in the past.
“In previous global diaspora fora the conversation was focused on what the diaspora can do to support itself, or how the diaspora can try to get access to capital through existing mechanisms,” Liesl Riddle, head of George Washington University’s Diaspora Program told Devex. “What’s different about this particular diaspora forum is we now have models that are supported by the U.S. government. There is now more of a conversation around partnership in financing for development.”
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Naki is a former reporter for Devex Impact based in Washington, D.C., where he covered the intersection of business and international development. Prior to Devex he was a Latin America reporter for Energy Intelligence covering corporate investments and political risks in the region’s energy sector. His previous assignments abroad have posted him throughout Europe, South America and Australia.
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