Impact of the Global Financial Crisis on International Labor Migration and the Economy of Sri Lanka * L.K. Ruhunage Sri Lanka Bureau of Foreign Employment When we discussed this subject at the last MISA project meeting in Manila in January 2009, almost all the participants were of the view that it was premature to make an assessment. The report written by Manolo Abella and Geoffrey Ducanes on the findings of the meeting mentioned that it will take more time for the full scale of the global economic crisis to unveil its impact on the cross border movements of labor. The Sri Lankan presentation, while discussing the declining trends in overall recruitments reported during the last few months in 2008 and Korean recruitment in particular, expressed the fear that the crisis would have adverse effects towards the end of 2009. It also highlighted the marginal drop of migrant remittance shown at the end of 2008, and the forecasted drop in remittances in 2009. In contrast to these predictions, when we meet here after 15 months since the last meeting, it is with great relief that Sri Lanka could state that the global economic crisis as a whole has not impacted heavily on the country s labor migration or associated economic benefits such as remittances as expected earlier. Before we discuss the impact on migratory movements, it is worthwhile to concentrate the impact on some other economic indicators as well. Impact on the Domestic Labor Market An ILO study carried out in Sri Lanka in mid-2009 has revealed that the domestic labor market was affected due to the crisis rather than the country s foreign employment process. The report comparing the first quarter of labor force survey in 2009 with the *Paper prepared for MISA Project Phase 2 and presented at the ILO/SMC Conference on Assessing the Impact of the Global Economic Crisis on International Migration in Asia: Findings from the MISA Project, Ortigas Center, Manila, Philippines, 6 May 2010. 1
result of the survey in the same period of 2008, pointed out, that the economy has lost nearly 30,000 jobs in the manufacturing and trade sectors, while losing 64000 jobs in the construction sector. It is further reported that garment sector alone lost 40,000 jobs. The report further went on to state on the slump in export markets which has compelled closure and lay off of several manufacturing ventures in the domestic economy. Citing the instances in the apparels sector, where some of the factories were forced to close while some faced the situation of labor and salary reductions, the study reported that 129 manufacturing companies were reported to have been closed during the period of September 2008 to July 2009 in Sri Lanka. Further analysis of the impact of the economic recession on Sri Lanka s domestic labor market can be viewed from the results of labor force quarterly survey, conducted by the Department of Census & Statistics for 2009. Accordingly, the total employed population has come down from 7.65 million persons in 2008 to 7.60 million persons in 2009, registering a decline of 0.6 percent or by 500,000 persons. The Central Bank report identifies the shrinking of economic activities in connection with the financial crisis. On the other hand the number of unemployed in the labor force during the period under review, 2009, has widened from 5.4 percent in 2008 to 5.8 percent in 2009, or from 434,000 to 471,000 persons of the labor force, signifying further impact on the domestic labor market, which also generated a significant surplus labor for the foreign job market. The slump in Sri Lanka s economic growth due to the recession is further suggested by the country s annual GDP growth rate in recent years as shown below. Year GDP (Growth rate) 2007 6.8 2008 6.0 2009 3.5 Source: Central Bank The onset of the crisis is considered as a factor for these declining trends in 2008 and 2009. Domestically the external trade sector was the other area affected by the economic crisis as identified by economists. While the country s exports income decreased by 12.7 2
percent, the decrease in the imports sector is reported to be 27.6 percent in 2009. It was seen that the decline in export earnings in 2009 mainly reflected in the industrial and mineral exports. Even the prices of traditional agricultural exports, such as rubber and coconut, reportedly dropped in the year 2009, while tea prices maintained a moderate level. Among industrial exports, the decline of revenues in the garment sector is more evident. The withdrawal of short term capital by foreign investors resulting from adverse global conditions, further strained the country s foreign reserve, compelling the government to borrow a special loan from IMF to soften the situation. Foreign Employment Overall, at the initial stage of the crisis, the outflow of Sri Lankans for foreign employment took a down turn from the 3 rd quarter of 2008. The data in Table 1 show the slump of monthly departures, which commenced from the 3 rd quarter of 2008 but recovered from May 2009. Table 1 Departure for Foreign Employment in 2008 /2009 Month 2008 2009 Change January 20518 20957 +2.1 February 20793 14693-29.3 March 20947 19364-7.5 April 19632 18209-7.2 May 23151 20959-9.4 June 22632 22936 +1.3 July 22388 23990 +7.1 August 20314 23407 +15.2 September 24970 20157-19.2 October 20225 23242 +14.9 November 19239 20343 +5.7 December 17212 18862 +9.5 Total 252021 247119-2.0 Source: Sri Lanka Bureau of Foreign Employment (SLBFE) 3
Country-wise Impact Data in Table 2 revealed that Korea and Malaysia in the Asian region and the UAE, Kuwait and Israel in the Middle East emerged as the most hit regions in terms of the deployment of Sri Lankan workers. The decline reported in the year 2009 shows that job recruitments to the UAE dropped by 23.6 percent from 51840 in 2008 to 39586 in 2009. The drop in Korean recruitment under the Employment Permit System (EPS) was down 43 percent from 6992 in 2008 to 3991 in 2009, while the drop reported in relation to Kuwait and Israel was 10 percent and 25 percent, respectively over 2008. However, except for Korea, Malaysia, UAE, Kuwait and Israel, it is significant to note that the recruitment to most of the other countries gained positive results, with Saudi Arabia recording a 15 percent increase; Qatar, 11 percent increase; and Lebanon, 18 percent. Thus, as Table 2 shows amidst the crisis, the overall recruitment for foreign employment in 2009 has dropped to a very nominal rate of 2 percent only. Further evidence of the economic recession could also be from the increase of arrival figures of the Sri Lankans in 2008 over 2007. According to immigration data, the total numbers of Sri Lanka s arrivals during 2008 were 900,815 over 811,235 in 2007 realizing an increase rate of 11 percent in 2008. In the absence of data for 2009 yet, this argument cannot be more reviewed. Impact on Manpower Profiles of Migrant Workers As shown in Table 3, there was a sharp decline in the demand for unskilled categories and middle level categories in world labor markets in favor of Sri Lankan manpower in 2009. The drop was 13.2 percent and 17.4 percent, respectively for the said two manpower categories. In contrast to this situation, a slight increase can be noticed in skilled labor demand as well as for the domestic worker segment in 2009 revealing mix results of the labor market adjustments during crisis period in Middle East countries. It can be reasonably argued that the high demand for skilled labor prevailed in Qatar and 4
the Kingdom of Saudi Arabia may have resulted for the increase of skilled labor demand. Table 2 Recruitment for Foreign Employment in 2008 and 2009 by Major Country of Destination Country 2008 2009 Percent Change Saudi Arabia 67806 77826 14.7 Kuwait 47168 42400-10.1 UAE 51840 39586-23.6 Qatar 39543 43744 10.6 Lebanon 4996 5907 18.2 Jordan 10487 9032-13.8 Oman 4748 5326 12.2 Bahrain 4688 5929 26.4 Maldives 4245 3904-8.0 Cyprus 2822 2829-0.2 South Korea 6992 3991-42.9 Singapore 1072 1026-4.3 Malaysia 1300 1050-19.2 Mauritius 359 646 79.9 Libya 237 161-32.0 Israel 1256 939-25.2 Others 4955 3853 10 Total 252021 247119-2.0 Source: SLBFE Table 3 Manpower Profile of Migrants Categories 2008 2009 Percent Change Professional 2836 2820-0.5 Middle Level 15871 13098-17.4 Skilled 59848 61230 2.3 Unskilled 64757 56194-13.2 House Maids 108709 113777 4.7 Total 252021 247119-2.0 Source: SLBFE 5
Job Vacancy/Demand As shown in Table 4, it is noted that the demand for some job categories has declined in 2009, compared to 2008. In the professional categories, occupations like accountants, engineers, architects and q-surveyors reported a decrease against 2008, while draughtsmen and hotel workers in the middle grade manpower category have shown a downward demand, by 68 percent and 18 percent, respectively as against 2008. In the category of skilled jobs, the downward trends were more significant for drivers and garment factory workers, where the decrease stood at 24 percent and 16 percent, respectively. In the category of unskilled manpower, cleaners were most affected category where the drop was 27 percent over 2008. Table IV Job Vacancies Received for Selected Categories from Foreign Principals Job category 2008 2009 Percent Change Accountants 1563 1121 28 Engineers 2931 2179 33 Architects 124 73 41 R. Surveyors 444 394 11 Draughts men 47 15 68 Drivers H/V 11882 9042 24 Drivers - Domestic 81129 65494 19 Hotel workers 17518 14394 18 Garment Factory workers 21857 18302 16 Cleaners 22930 16697 27 Source: SLBFE 6
Other Salient Features Analysis was also attempted to gauge the ill effect of the economic recession on labor migration by reviewing the number of complaints made by expatriate workers on non-payment/ underpayment of wages against the standard of service contracts. The figures gathered for 2008 by SLBFE show that there were 1667 complaints recorded by the SLBFE regarding non-payment or underpayment of wages, while in 2009 the figures jumped up to 1945 or a 16 percent increase. Overall, the total complaints went up by 25 percent in 2009 from 9363 in 2008 to 11728 in 2009. Private Remittances A slowdown of the private remittance flows of Sri Lankan migrant workers was evident from the 3 rd quarter of 2008 to the 1 st quarter of 2009. The Central Bank reports indicate a slight drop of 1.7 percent of the flow in the 1 st quarter of 2009 as against comparative data in 2008, from US$78 million in 2008 to US$77million in 2009. However, overall annual data does not support this trend; instead a 14 percent growth was recorded in 2009 as against 2008. Table 5, which suggests this scenario, indicates that almost all the regions of origin of remittances reported a plus value in 2009 as against 2008. In particular, the Middle East region reported the highest growth of 14.3 percent. The upward trend may have attributed to the fact that most Sri Lankans who held foreign bank savings in host countries would have diverted their savings to the mother country in fear of any embargo on foreign remittances or subsequent depreciation of exchange value, among other reasons. Loss of Job Opportunities The SLBFE attempted to collect data on job losses due to the economic slump but was not successful due to non-response by returnees. A special web page was developed to gather these data while encouraging overseas Sri Lankan missions to maintain a registry for recording data on workers who lost their jobs. During the early part of 2009, only 16 people provided data. The complaints recorded by the SLBFE from the returnees were also not much as only 18 people reported stories of job losses. Apart from individual complaints, a few instances were reported related to closure or 7
stoppage of production of garment factories in Jordan and the UAE, compelling workers to return home prematurely. According to reports by Sri Lankan missions, nearly 200 such workers were reported to have returned home. Table 5 Private Remittances, 2008 and 2009 (in US$ million) Origin 2008 2009 Percent Change Middle East 1745 1995 14.3 Europe 525 603 14.8 Far East 175 203 16.0 Europe others 117 137 17.0 North America 114 127 11.4 South East Asia 90 100 11.1 Oceanic Countries 55 57 3.6 South Africa 32 40 37.5 South and Central 23 28 21.7 America Eastern Europe 12 12 - Others 29 30 3.4 Total 2918 3330 14 Source: Central Bank Report 2009 Conclusion As per the discussions above, it can be stated that overall, Sri Lankan labor migration process has not been drastically affected by the economic crisis, although it brought some negative effects during early stage of the crisis. 8
References (1) Rapid Assessment of the impact of the Global Economic Crisis on employment and industrial relations in Sri Lanka Ramani Gunathilake -ILO-August 2009 (2) Central Bank of Sri Lanka Report 2009 (3) SLBFE statistical reports 2008 /2009 (4) Global Financial Crisis Economic Review Peoples Bank, Sri Lanka April 2009 9