Latin America's Emigration Problem
Latin American emigration is becoming an increasingly important political, economic and social issue. Traditional outward flows to the US are now being supplemented by the massive intra-regional movement of Venezuelans. Sam Benstead looks at how it impacts investors...
What happened?
The United States immigration policy is back in the spotlight. President Trump responded to political pressure and issued an executive order ending the policy of separating families caught illegally crossing the border. The separation policy – implemented in April 2018 – involved prosecuting adults and sending them to US jails, while placing children in detention centres. Around 2,300 children were separated from their parents.
Why is it happening?
Trump put no-tolerance immigration policy at the heart of his presidential campaign. In his view many illegal immigrants entering the US from Mexico and Central America commit crimes and undercut the wages of American workers. Immigrants are drawn to low skilled jobs in agriculture (17%) and construction (13%), according to the Pew Research Centre, which increase competition for this work in the US.
Trump’s anti-immigration message propelled him to victory in 2016. Like building a wall along the border, separating families was used as a tool to deter further immigration and win Trump popular support. Illegal immigration is a huge challenge for the United States. There were 310,531 apprehensions of illegal aliens by US Border Control in 2017 and its estimated that there are around eight million illegal immigrants in the US. What’s perhaps surprising is that three quarters of family and child apprehensions since 2013 involve Central American – not Mexican – immigrants. As such, immigration strategy spreads further than the US frontier, and is a LatAm-wide challenge, and for some, opportunity.
Is Trump particularly tough on illegal immigrants?
No. So far, yearly apprehensions of illegal immigrants trying to cross the border under Trump have not reached the levels seen under his two immediate predecessors, Barack Obama or George W. Bush. Moreover, using US Border Control apprehension rates as a proxy indicator for overall quantity of illegal immigration, we see that immigrant numbers have been falling since 2000, and experienced a sharp decline from 2005 to 2009. However, apprehensions remained largely stable from 2011 to 2017, at between 300,000 to 500,000 a year.
Why are Latin Americans illegally entering the US?
Illegal immigrants are seeking a better life for themselves and their families. The obvious pull factor are the economic opportunities in the US. Other pull factors include: lax law enforcement standards, such as turning a blind eye to child immigrants; family networks which offer the stability of a house or even a job; and lenient immigration laws, such as the US policy of granting citizenship to people born inside its borders, regardless of parental citizenship.
Push factors are also significant. For Central America and Mexico, the greatest push comes from violence and poverty. While impossible to break down the exact reasons for each immigrant’s journey, it is possible to assume that the uptick in Central American illegal immigration in the 1980s and 1990s was due to civil wars forcing people seek a new home for fear of violence. In Mexico, increasing narco violence had a similar effect, pushing citizens to seek a safer life in the US. On the economic front, illegal immigration spiked after NAFTA, when Mexican workers in the rural south could no longer compete with large US farms without tariff protection, and therefore emigrated to find work opportunities north of the border.
What about intra-Latin American immigration?
One recent pattern has been Central American immigrants staying in Mexico after failing to make it to the US. Apprehensions of Central Americans on the Mexico-Guatemala border have grown year on year from 2013 to 2016, increasing from 78,000 to 166,500. This flow of immigrants presents acute challenges for Mexico, which is under pressure from the US to increase border security, while Central American immigrants are applying downward pressure on wages in rural Mexico.
As Venezuela has collapsed economically, its citizens have fled the country…"
The most powerful Latin American immigration trend is the outflow of Venezuelans into Brazil, Colombia and the Caribbean. As Venezuela has collapsed economically, its citizens have fled the country in order to find work and basic goods, such as medicine. The UN estimates that 1.5 million have the left the country, with most of them arriving into Colombia, as well acting as a transit country as Venezuelans move into Ecuador, Chile, and Central America. At the moment, Colombia is playing the good neighbour, and is ready to provide public services to immigrants while it decides what to do over the medium term. But this goodwill won’t last forever, and the Colombian public is likely to push for harsher anti-immigrant policies as it become more evident that public services can’t cope, and the impact on the job opportunities, and salaries, for Colombians becomes greater. Already there have been spouts of violence at the border city of Cúcuta, which receives the brunt of the immigrant flow.
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How does this impact the emigrants’ home economies?
Emigration is a mixed bag for origin governments. On the one hand, brain drain becomes a serious economic problem. Money is invested in healthcare and education but then the government never sees a return in taxes, and innovation, because its citizens – mostly young men who could be part of the workforce – leave and apply their skills elsewhere. It traps an economy because it does not have the human capital to create new opportunities to propel growth and innovation.
However, a clear benefit for origin countries comes through remittances, which effectively turn emigrating workers into an export. Immigrants send money back into the economy, which is then spent by family members and friends, providing consumption and tax benefits to the economy. Moreover, remittances act as counter-cyclical spending boosts which developing governments often fail to provide. When times are tough, family members living abroad will send more money, helping to smooth out the economic cycle. This money is crucial for the well-being of Central American economies. Remittances in 2017 contributed 20% of GDP in El Salvador, 19% in Honduras, and 11% in Guatemala, according to the World Bank. It was around 2% in Mexico. Therefore, Central American nations face a dilemma. They rely upon remittances for economic survival, but also struggle to develop their economies as a result of the exodus of its working-age citizens.
What about the destination countries?
With the right policy, governments can use immigration to boost the quality and quantity of its labour force, which in turn will lead to greater economic output. For example, many early waves of Venezuela immigrants brought valuable technical skills in the oil and gas sector. A forward-thinking government in Colombia or Brazil, or emerging oil countries Suriname and Guyana, could provide visas for qualified Venezuelan workers in a bid to grow their domestic energy sectors.
Nevertheless, destination governments, like Colombia and Brazil, must tread carefully, or risk the type of backlash we’ve seen against uncontrolled immigration from Germany to the US. If heavy immigration begins to undermine the living standards of local people, then Latin America’s high level of trade and labour integration will be questioned. That would be bad news for international investors that like to seize opportunities across the region.