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EFFECTS OF REMITTANCES ON THE LIVELIHOOD OF FARM HOUSEHOLDS

10,000 3,000

ENUGU STATE, NIGERIA AS CASE STUDY

Topic Description

CHAPTER ONE

INTRODUCTION

1.1 Background Information

With an estimated population of 150 million people, Nigeria is the most populous country in Africa. About two-thirds of the population resides in the rural area where they derive livelihood from Agriculture and allied sectors (Oseni & Winter, 2009). Although, agriculture has remained a rural enterprise, it accounted for 41.21 per cent of the GDP and the largest non-oil export earner to the country (National Planning Commission [NPC], 2006).

Agriculture as practiced in Nigeria is predominantly of small farm household (comprising the farmer and his family) which usually cultivates an area of land that ranges from 1.5 to 2.0 hectares in fragmented and scattered small holdings.  Although these households are individually insignificant, they collectively form an important foundation upon which the Nigerian agricultural economy rests. This category of farmers are desirable not only because they provide employment and food for the country’s teeming population (Nigerian Institute of Social  and Economic Research, 2003), but also because they provide a more equitable distribution of income as well as effective demand structure for other sectors of the economy (Dorner, 1995; Bravo-Ureta & Evenson, 1994).

According to Ashley & Carney, (1999); Chambers & Conway (1992) agricultural production is not the only source of livelihood available for the rural people, farm households constantly adjust their on-farm and off-farm activities (e.g. local craftwork, trade, civil service, hunting for game, brick laying, local services such as traditional healing and repairs) in response to some changes in their environment. The characteristics of livelihood components are determined by the resources and values of specific physical, social and environmental assets. Thus, livelihood can be described as consisting of systematic activities or enterprises undertaken by individual households using their capabilities as well as assets to derive material or financial reward and improved status (Assan, 2006).  However, the effort by households to improve their well being through engaging in various livelihood options tend to be distressed by environmental factors,  unemployment and poverty which dominate the livelihood patterns of farm households (Barrett et al, 2001; Ellis 1998).

Despite the reported decrease in poverty in the last decade (NBS, 2005), it is generally believed that poverty rate is still unexpectedly high in Nigeria with the rural areas more affected (Babatunde & Martinetti, 2010).  Moreover, World Development Indicator (2007) and Happe (2003) stated that poverty is disproportionately concentrated among households whose primary livelihood depends on agricultural activities.

Livelihood of the farm households is bedeviled by missing market, lack of fundamental assets, production services and  inputs (such as land, water, credit, extension, market information and technical innovation), high unemployment rate, recurring crop failures, precarious labour conditions and low salaries (International Fund for Agricultural Development, (IFAD) 2007; World Bank, 2007). Nwaru (2004) noted that inappropriate policies and programme for Agriculture, pervasive corruption manifesting in misappropriation of resources and embezzlement, ethnic and religious conflicts has resulted to a high sense of insecurity and inefficiency in production.

Owing to the inability of government to meet the needs and interests of the farmers, rural sector within this context, offer inadequate and limited options to satisfy the needs of the rural farm households and provide them with little opportunities to improve their lives (IFAD and FAO, 2008). To guarantee survival, migration as a supplementary source of livelihood and household diversification strategies has assumed importance (FAO, 2007; Samal, 2006).

Migration – (whether Domestic or international) is generally a household decision and a strategy to diversify income, minimize risk, cope with economic crisis and improve livelihood and welfare (Kiiru, 2010; Assan, 2006; Pott, 2006; Samal, 2006; Young, 2006).  Evidence has shown that, although the poor have higher migration propensities, the poorest people cannot afford the material cost and risks associated with international migration and are linked more to internal migration (Hatton & Williamson, 2004; Waddington & Sabates-wheeler, 2003). IFAD and FAO (2008) noted that, though internal and international migration have differing characteristics, the motive for displacement is similar – the search for new options to improve the quality of life – and is thus an indication of limited opportunities.

According to Asa (2007) and Samal (2006) remittances are positive outcomes of migration and are the portion of migrant workers’ earnings or available income sent to their families back home (Khoudour-Casteras, 2007). Ratha (2003) stated that private inward remittances are often affected by unanticipated economic shock such as fuel price increase or elimination of agricultural subsidies which leads to income shortfall. However, unlike internal remittances, international remittances have proven surprisingly resilient in economic down turns (World Bank 2006). For instance, remittance flows to the developing countries total US$221 billion in 2006 – an amount that was twice the official development assistance to developing countries in that year (Gupta, Pattillo & Wagh, 2009). IFAD (2007) indicate that the volume of remittances to developing countries increased by 10.7 per cent between 2002 and 2007, thus they predicted that over the next five years, cumulative remittances to developing countries will exceed US $ 1.5 trillion.

Statistics has shown that, Nigeria was the highest receiver of remittances in Africa and thirteenth in the world. With US $ 3.329 billion remittance in 2007, Nigeria alone accounted for about 31 per cent of the total remittances flows to Sub-Saharan Africa (as presented in Table 1) and are the largest share of African migrant population in USA and Europe (SAMP, 2006). However, there are evidences that remittance flows are underreported, so that the actual amount could more than double the official formal transfer (Gupta et al, 2009). According to Pendleton (2006) this is because, migrants predominantly remit through informal money transfer; the formal options are not readily available to undocumented migrants and low income clients wishing to send money across border.

Remittances are believed to have huge impact on the socio economic conditions of families left behind in place of origin (Babatunde & Martinetti 2010). This is because it provides migrant households with funds that are uncorrelated with agricultural income (World Bank, 2006). Furthermore, remittances are overtaking income from agriculture in sheer size and importance, as persistent socio-economic and structural problems continue to depress the level of rural wages and availability of work (Deshingkar & Anderson 2004; Van Der Geest, 2003).

Many researchers have postulated that remittances represent a stable flow that frequently arrive in depressed localities, unbound by the conditionality and dependence of foreign direct investment (Inter-American Development Bank, 2008). Unlike foreign aid, remittances goes directly to intended families in places that are often difficult to reach with official development assistance and it could be used by household according to their own priorities (Kiiru, 2010; Samal, 2006; Stein, 2003). It is also evident that remittances have shown not to be sensitive to market cycles, economic downturn and crisis. Instead, they have even increased during economic recessions (World Bank, 2006).

 

Table 1: Estimated remittances to selected sub-Saharan Africa countries and other regions, 2010

Countries and regions Remittances amount (US $ billions)
Nigeria10.0
Sudan3.2
Senegal1.2
Uganda0.8
South Africa

Kenya

1.0
1.8
Lesotho0.5
Mauritius0.2
Mali0.4
Togo0.3
Cote d’Ivoire0.2
Ethiopia0.4
Cape Verde0.1
Sub-Saharan Africa21.5
Middle East and North Africa35.4
South Asia82.6
East Asia and Pacific91.2
Latin America and the Caribbean58.1
Europe and Central Asia36.7

Source: World Bank, 2011

Availability of remittance – whether cash or in-kind – has the potential to reduce poverty, smoothen consumption and ease capital constraint as well as improve livelihood diversification or intensification among farm households (Deshingkar, 2004). Due to the absence of government interference, remittances usually do not carry any obligations, constraints or preconditions, thus it has adequate scope to become viable rural investment tools provided the required policy, institutional and social security support system are in place.

 

1.2 Problem Statement

Agriculture plays a predominant role in Nigeria’s drive toward economic development through provision of food, raw material, employment and foreign exchange earnings (Nwankwo 1981). However, the continued performance of this role by farm households has been severely constrained by paucity of fund.

Despite the existence of many financial institutions and the agricultural policy guidelines, commercial banks are reluctant to lend to farmer due to the inherent risks and uncertainties in agricultural production (Adera 1995). This resulted to the vicious circle of low sector income, low savings, low investment and low output as well as falling asset value and uncertain income potentials which has left agriculture in an epileptic state (Duncan  &  Harrington, 1986). This implies that farmers have to look up to non-farm sources of finance and are often tempted to join non agricultural, non-rural labour market and a higher proportion than usual being forced out of  farming or at least into substantial changed mode of operation (Drabenstott, Duncan & Kim Norris, 1985).

Migration has been adopted as a means of spreading the financial risk by farm households, thus the migrant remittances form an important source of income arriving in a depressed locality (IADB 2008). Evidence has shown that remittances – whether cash or in-kind – has the potential to reduce poverty, smoothen consumption and ease capital constraint as well as improve livelihood diversification or intensification among farm households (Samal, 2006; Deshingkar, 2004 Bilsborrow, 1998; Shark, 1991). Despite this perceived importance of remittances in enhancing income of farm households, the mechanism through which remittance are transferred have not been adequately studied in Nigeria. This yawning knowledge gap has continued to persist, notwithstanding the significant effects of remittances on micro as well as macro level of the economy. While there is good information on international remittance, very little is known about domestic remittance (Kiiru, 2010). This study will consider both internal and international remittances. In addition, accurate analysis of remittance utilization by farm households is rarely studied (Meyers, 1998). Quartey (2006), observed that the contribution of remittances to farm households livelihood have received insufficient attention despite the fact that they are invaluable to poverty reduction.

Though, a number of studies have treated the impact of remittances on development, welfare, food security, poverty and income inequality in Nigeria (e.g. Babatunde & Martinetti, 2010; Oseni & winter, 2009; Chukwuone et al., 2007), the authors are silent on the effects of remittance on farm households’ livelihood in the country. In all these studies, the link between migrations, remittance transfer mechanisms and its effects on farm households’ livelihood has not been established empirically in Nigeria. As a result of this research gap, relatively little policy efforts have been made to utilize remittance toward productive use. Concrete policies that could encourage the flow and efficient use of remittances are generally lacking (Maphose, 2007). One reason for this might be the absence of up-to-date empirical evidence regarding the effects of remittances in the specific context (Samal, 2006).

The synergy between migration and livelihood with respect to remittances has largely gone unnoticed, whereas the combination of such perspective could create significant empirical and theoretical cross fertilization. Hence, the pertinent research questions emanating from this proposed study are as follows; what are the factors that influence migrations of household member(s)? What transfer mechanisms have been adopted? What are the sources and uses of remittance? And how do remittances affect the livelihood of farm households in Enugu state? These questions among others will be addressed by this study.

 

1.3 Objectives of the Study

The main aim of the study is to determine the effects of remittances on the livelihood of farm households in Enugu State.

The specific objectives are to:

  1. describe the socio-economic attributes of the recipient households;
  2. identify the source(s) and remittance transfer mechanism used;
  • identify the types of remittances and uses to which they are put by farm household;
  1. determine factors that influence migration of farm household member(s);
  2. determine the effects of remittances on farm households’ livelihood;
  3. make recommendations based on findings.

 

 

1.4 Research Hypotheses

The study shall be guided by the following null hypotheses:

  1. Ho: Socio-economic factors have no significant effect on migration of household member(s).
  2. Ho: Remittances have no significant effects on livelihood of farm households.

 

1.5 Justification of the Study

This study is an attempt to determine the effects of remittances on farm households’ livelihood in Enugu State of Nigeria. The importance of remittance in improving the livelihood of farm households underscores the need for intensification of research efforts in this direction. Enugu state represents a good case study for examining these issues. Not only is poverty widespread in the state, but the state also produces a large number of domestic and international migrants (Babatunde & Martinetti, 2010).

Several researchers (Gupta et al., 2009; Quartey, 2006; Samal, 2006; Ratta, 2003) have given evidence regarding the effects of remittances in improving the livelihood and economic status of recipient households. These have been documented mainly in developed countries and other African nations. Not much is documented in this context in Nigeria and Enugu state in particular. There is therefore, every need to undertake a study of this nature as part of the measure to bridge the gap.

This study is expected to identify some of the factors that influence migration and bring to limelight the benefit of out migrant remittances as a portfolio diversification strategy for farm households at the micro level. It also intends to correct the trend on academic, press and policy debates that view migration as problematic and undesirable ignoring the vital effects of remittances in liberating households from the poverty trap (De Haan, 1999).

Finally, the result of this study will guide policy making bodies in formulating policies that will encourage the flow and efficient use of remittances in the country. The study will also add to the available literature on remittances and students and researchers will find this work useful for reference purposes.

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