This paper aims to address the issue of economic reintegration for OFWs. It describes the problems besetting OFWs in this particular area and offers explanations on the causes of these problems.
After identifying and describing the problems, this paper offers proposals on how the OFW organizations known as Accredited Community Partners (ACPs) can address these problems by themselves.
Finally, this paper proposes a fundamental solution to the economic reintegration issue through a much-needed legislation. The proponent firmly believes that the passing of the proposed legislation (OFW Economic Reintegration Bill) into a law will provide the fundamental solution to the problems faced by OFWs in the area of economic reintegration.
II Perspectives on Economic Reintegration.
While reintegration is a vague undefined concept, it can be broadly defined as a body of ideas, concepts, or thinking on how the OFW is able to successfully rejoin Philippine society after his stint abroad. While reintegration has its own social and psychological dimensions this paper concerns itself only with the economic aspect of reintegration.
In specific terms, economic reintegration can be defined further as a system, method or plan of action by which the OFW is able to economically sustain his family after his stint abroad. The obvious end is family sustenance after his stay abroad.
There are three possible basic scenarios for an OFW who can successfully reintegrate and each of these scenarios assume that the OFW is exposed to a reintegration program of sorts, either by his own self study or by joining a group involved in reintegration such as PICPA or OFW Investors Society (OFWINS).
At the highest end of this is the scenario where the OFW and his family can live with the earnings of his savings/investment for years without the need to work, in which case he has attained what is being termed as financial independence.
At the lowest end, is a situation where an OFW takes on another job in the Philippines just to sustain his daily needs and prevent his savings from getting depleted. This of course, assumes that he is still employable and not too old to get employed. This assumes further that he has taken at least a minimum of reintegration courses so as to have a relatively higher savings rate and has saved substantially during his tenure abroad.
At the middle of the spectrum are cases where the OFW, having diligently attended a lot of training on business and investments and is substantially prepared to plunge into business using as capital the savings he made during his tenure abroad, plunges into business and the business is successful enough to sustain his family. This is a rare case, however, as evidenced by overwhelming rate of failure of OFW-initiated businesses.
III Situation Background: Problems and Concerns on Economic Reintegration
a. The Proliferation of Investment Scams
The first and foremost of the problems in the reintegration area is the unabated proliferation of investment rackets in which OFWs have become a fair game in view of their well known purchasing power. Particularly rampant are Ponzi-type pyramiding rackets the standard methods of which are fairly known.
Since 1996, a seemingly endless procession of Ponzi-type rackets have been sweeping along OFW communities in the Middle East and each time, each racket never fails to victimize hundreds or thousands of OFWs, taking heavy toll on their hard-earned earnings. When I say that hundreds or thousands get victimized, this is likely an understatement.
b. Very High Casualty Rate on OFWs Going Into Business
Another problem in reintegration is the very high casualty rate on OFWs going into business. The author has not yet seen with his own eyes any OFW business in the country that is truly successful in standards normally used in business, such as having a return on equity (ROE) above the cost of capital, sustained for a substantial period, say at least 5 years.
While there are no statistics available, the rate is probably at least 95% based on this author’s own observations. The high casualty rate is simply attributed to the fact that most OFWs who go into business have very little or no preparation at all. Oftentimes, OFWs plunge directly into this complex world “trusting blindly to luck”.
As PICPA-Riyadh seminar lecturer Eufemio Bantugan once succintly puts it during one of his seminars on How to Start Your Own Business, “going into business does not depend on luck and that it is more like going into war.”
The would-be OFW businessman not only has to have the necessary weapons…he has to have the skill and training on how to survive. In other words, the would-be OFW businessman has to have as much preparation as possible.
While training and preparation do not guarantee success, they guarantee however that, the OFW has, at least, a “fighting chance in the oftentimes brutal business environment”. This issue of training and preparation leads us to the next problem.
c. Dearth of Organized Channels Involved in Reintegration
There has been a dearth of organizations involved in economic reintegration just as there is dearth of materials on the issue of how to go about reintegration. Note that of the hundred or so ACPs in Riyadh, only about two or three are involved in reintegration.
The distribution is simply skewed with the biggest concentration in sports and social activities. As a result of lack of available organized channels, most OFWs on the one hand, are totally in the dark about where to put his own savings and where to go after his stint abroad.
In the process the typical OFW goes on investment trial and error binge – probably mostly error with his hard-earned money. Most of the time, the OFW either gets victimized by the endless stream of pyramiding investment rackets as mentioned above or he dissipates his earnings in ill-advised projects and in a short period of time he is back to a situation where he was before his stint abroad.
In many cases, the OFW is even worse off as his stint abroad has engendered an artificial lifestyle for his family which he can never sustain when he comes back home.
d. Lack of Government Policy and Institutional Support on Reintegration
Another issue is an apparent lack of government support on the reintegration process. The POEA and OWWA are obviously not prepared and do not have the structure to handle problems relating to eoconomic reintegration. It is apparent that the problems and issues on reintegration were not foreseen when the charters of both bodies were formulated.
That our existing government bodies dealing with OFWs are ill-equipped to handle reintegration issues were highlighted in the heyday of the pyramiding scams in Riyadh in 2002 when both the POLO and the Embassy were deluged with inquiries on the investment and legal legitimacy of each of the schemes.
Both bodies proved utterly helpless in providing guidance as they could only refer the matter to home office (DOLE and DFA) who in turn have to refer the matter to the proper government bodies such as SEC who in turn, could not answer quickly enough or give definitive answers on the issue.
OWWA Mandate and Grossly Inadequate Reintegration Program
Going back to OWWA, this body has a two-fold mandate: (i) Delivery of welfare services; and (ii) Ensuring capital build-up and fund viability. It is crystal clear that this government body is just an out-and-out welfare agency concerned with being viable.
OWWA has, of course, some kind of an Economic Reintegration Program which is tied up with National Livelihood Support Fund (NLSF). The mandate is to have some kind of “social preparation programs for livelihood projects or community-based income generating projects, skills training and credit facilitation and lending.”
One who is investment literate may probably wonder if this is some kind of a joke. It is as if the government is consigning us poor OFWs to become raisers of goats and ducks, if not hewers of stone. OFWs will never get anywhere with this program, I am sorry to say.
Assistance from Govt. Agencies Available Only on Piecemeal Basis
A case in point are OFWs who approach the government for whatever assistance available for setting up businesses. The government agencies can deal only with specific piecemeal tasks: Bureaud of Domestic Trade (BODT) for registration of small businesses, SEC for registration of corporations, Land Bank or DBP for loans, etc. No single government agency is in position to handle the problems of OFWs going or wanting to go into business.
e. No OFW- Specific Investment Law and Lack of Awareness of Applicable Existing Laws
The other important point here concerns the laws relating to small businesses. The fact is that there simply is no law regarding OFW investment/business that cater specifically to reintegrating OFWs.
To have quick review of potentially-relevant laws passed during the last few years, we can mention the RA No. 6810 (popularly known as Kalakalan 20 or Magna Carta for Barangay Business Enterprises) passed in 1989 to directly address the issue of countryside development. It provided for incentives for enterprises with 20 or less employees.
The second law, RA No.6977, passed in 1991 and known as the Magna Carta for Small Enterprises, provided for a support structure for small business development.
The third law was passed only more recently in 2002: RA 9178 (known as Barangay Micro Enterprises Act) which provides for extraordinary incentives and privileges to micro-entrepreneurs, including income tax exemption.
The relevant observation here, first of all, is that these laws were never designed for OFWs and while they may be useful, they are incomplete for OFW needs at best. The second observation is that while these laws exist, OFWs generally are not aware of their existence which fact precludes them from whatever benefits available.
f. No integrated approach & no agency/body to take care of economic reintegration needs.
The lack of central coordinating agency for OFWs have prevented them from benefiting on the above-mentioned laws the existence of which the OFWs are not aware of in the first place.The simple fact is that there is simply no government body that can deal squarely with the various and often complex issues relating to economic reintegration.
IV Investment Literacy as Requirement for Successful Economic Reintegration
At the root of the problem is what we describe in OFWINS as the lack of investment literacy by the overwhelming number of OFWs. The theory of investment literacy provides the basic framework for successful economic reintegration. We believe that no OFW will be able to reintegrate successfully unless he is investment literate.
The OFW Investors Society (OFWINS) defines investment literacy as the minimum level of proficiency in the basic principles of savings and investment so as to result in substantial improvement in the economic well-being of a person. While it is difficult to draw the line on where it begins, it is probably akin to having completed the elementary grades in the educational system. In concrete terms, it is a state of development where a person is substantially or preponderantly free from the most telling signs or symptoms of a person who is not investment literate. The most telling signs or symptoms are as follows:
• Inability to maximize savings;
• The tendency to get victimized by fraudulent investment schemes;
• The tendency to accept unwanted risks and burdens; and
• Business mentality
a) Inability to maximize savings rate
Inability to maximize savings rate is the first of the telling signs and is the most difficult to eliminate as it involves both awareness and a fundamental change in one’s values.
The spending habits of people in general and OFWs in particular are typically hostage to his own desires, rather than to his own actual needs, with the effect that as earnings or purchasing ability rises, his spending also rises in almost direct proportion to the increase in his earnings. His spending habits are a function of his desires which are essentially limitless, rather than a function of his actual needs which are essentially definite (food clothing, shelter, education, health, etc.). The result is the inability to maximize savings rate.
This phenomenon is so pervasive that many OFWs who have spent long years abroad find themselves unable to accumulate savings substantial enough for any meaningful investment program.
The theory of investment literacy is predicated on the fact that the ability to maximize savings is the foundation of any viable investment program, as any person cannot even speak of investment if he has no savings in the first place.
b) The tendency to get victimized by fraudulent investment schemes
The second most telling sign of lack of investment literacy is the tendency to get victimized by all sorts of fraudulent investment schemes, the most common of which are the Ponzi-type pyramiding schemes described above.
It is probably one of the biggest weaknesses of human nature to get lured to easy money, to schemes of getting rich quickly, not knowing that the rush to get rich quickly invariably results in getting poor even more quickly. The laws governing financial markets are fairly known and can only be violated at one’s own peril.
The financial markets provide a cap or limit on how much “fixed income return” investible money can earn and any scheme that purports or promises to give yields/returns beyond such a cap falls within the purview of “impossible earnings”.
This cap on possible fixed income returns is succintly described by the eminent investor John Bogle (founder and head of the global Vanguard Group of Mutual Funds) when he said that “ any return on fixed income investment beyond 15% should bettter be considered as found money.” Beyond such a cap, one is dangerously in the territory of impossible earnings and is likely on the road to financial ruin.
c. The tendency to accept unwanted burdens and risks
People in general and OFWs in particular, who are able to save some amounts in view of higher-than-usual earnings rate have the tendency to accept additional burdens and risks without much thought. The burdens and risks are in many forms and commonly come from friends and relatives who saw in the OFW a low-cost or even “free” source of funding for pet projects.
Thus an OFW may easily find himself beset by requests for loans and seed funding for business projects as friends and relatives become business-minded even without the slightest training or orientation of the type of business eyed upon and the inherent risks thereof. The project proponent usually does not have a business plan let alone a feasibility study.
The OFW who is not literate in investment finds it extremely difficult to turn down such proposals. This is simply because, having no theoretical foundation to serve as anchor for his decision, he fails to understand the risks involved. Moreover, he fears that the relative or friend involved will feel bad or even get angry if he turns him down. Little does he know that part of being investment literate is being able to control ones emotions. Thus, the nice OFW invariably suffers the eventual loss.
d. Business Mentality
Business mentality is simply the set belief or assumption by an overwhelming number of OFWs that they should become businessmen of sorts after their stint abroad. This mentality simply assumes that there is no other option for returning OFWs except to go into business.
The point we would like to emphasize here is that there are many choices open to OFWs and many of these choices are more lucrative and/or less risky than going into business. A related point here is that business is not for everybody, and many OFWs, particularly those not exposed to any training/seminar program in business or entrepreneurship, are much better off not going into business at all.
And even those who have had some exposure to a business training/seminar program, at some point in the program, will have to make the assessment if they are willing to put in the gruelling 12 hours to 16 hours usually needed in the formative stages of the business.
We have mentioned above on the very high casualty rate on OFWs going into business and our call is for those bent on going into business to have as much preparation as possible. While going into business for OFWs is not something to be discouraged, it should be placed in its proper perspective.
Lack of awareness on other investment vehicles available to OFWs
Corrolary to business mentality is the lack of awareness on alternative investment vehicles available to OFWs. Investment literate persons are well aware that they have an array of investment choices and they are taking things in their proper perspective.
What they do not realize is that there are, in fact, many investment options for OFWs other than going into business. An OFW for instance, can just simply invest in fixed income investment vehicles like the 5-year Prime Time Deposits offered by several saving and development banks with interest rates ranging from 5% to 8% p.a.(a few years ago this rate even went as high as 10%).
Or, the OFW can invest in mutual funds or invest in shares of stock of prime companies, although it must be emphasized that one has to have a degree of exposure to some investment training programs in order to invest successfully in such instruments.
It must be mentioned, however, that the great majority lose money in these investment vehicles mainly in view of lack of orientation and guidance. As in the case of going into business, one needs to have much preparation in order to invest successfully in these investment instruments. However, this author believes that making money in these instruments is easier than making money in ones own business.
V The Two Wheels of the Reintegration Cart
The road to investment literacy and successful reintegration for OFWs is a difficult one. It does not look like a paved highway but more like a footpath or a trail that only a cart can traverse at best.
While the effort of a relatively small number of private organizations are helpful in the drive for reintegration, this is not sufficient. Reintegration is too important an area to be left only to a handful of private organizations.
Reintegration should be the preoccupation of everybody as everybody has a stake in it. The ACPs must have a role to play, regardless of their intrinsic orientation. Moreover, this author firmly believes that the reintegration nut cannot be cracked without the necessary government intervention.
Government intervention is absolutely needed. This leads us to our proposal to both ACPs and the government. In this authors view, the private effort from ACPs and government intervention through the passing of much-needed legislation provide the “two wheels of the reintegration cart.” Then and only then can the overwhelming number of OFWs become investment literate and successfully traverse the reintegration pathway. This is where we turn to next.
VI Proposal to ACPs
There is so much darkness in the road to reintegration. Given the situation, the ACPs need therefore to act on their own to answer the needs of their members. As the saying goes, “it is better to light a candle than curse the darkness.” The following courses of action are therefore proposed for ACPs:
-Organize own reintegration program. This can be easily done by at least, the regionally-oriented ACPs like CALABARZON, Bicol Saro, Bisaya, Maja-as Federation and others in the KSA arena. Admittedly, to have reintegration program for sports oriented organizations or culturally oriented organizations is very difficult if not impossible. But if this can be done by sports or culturally-oriented organizations, it would definitely be a big step forward.
-The reintegration program can simply consist of periodic (say quarterly or semiannually) seminars and forums and inviting resource speakers from reintegration-oriented organizations such as OFWINS and PICPA or they can invite directly from the segments of the community such as the banking community.
- The concerned ACP can also organize their own business planning group as a subsection of their respective organization. These can meet regularly to compare notes and plans of action relating to business. The main point is to provide a fertile ground in the organization for reintegration-related activities.
It is the firm belief of this author that as organizations engage themselves in reintegration-related activities, a “savings and investment culture” would likely emerge to slowly replace the “consumption culture” pervasive among OFWs. In this way, OFWs will have gradually laid the basic foundation for successful reintegration with purely private initiative.
VII Proposal to Government
While the effort of ACPs in the process will be very helpful in the road towards successful reintegration, the faster, quicker and lasting solution can be provided by the government through the passage of a law creating an institution or structure to directly address the needs of OFWs on reintegration.
The basic premise here is that the reason for the prevalence of problems and concerns on reintegration as elucidated above, is that there is no institution by the government specifically tasked with reintegration. OWWA and POEA can never handle reintegration as they were never designed for this purpose in the first place.
Nowhere in the mandates of these two institutions is anything provided for economic reintegration, as they were created to handle deployment and welfare issues for OFWs. It is one of the biggest ironies that while the government and legislators provided for all OFW issues in going and staying abroad, they never provided for OFWs coming back. Here lies the basic problem.
The Proposed OFW Economic Reintegration Legislation
With the above premise in mind, it is hereby proposed that a legislation be passed “Creating an OFW Investment Assistance Center, Regional OFW Investment Asistance Offices and Deployment of OFW Investment Attaches in Overseas Sites Where There are Big Concentration of OFWs.” The proposed legislation is to be known as OFW Economic Reintegration Bill, and once passed, shall be known as OFW Economic Reintegration Act.
The basic purpose of this legislation is to create an institution or structure to directly address the needs of OFWs on all issues relating to economic reintegration such as but not limited to savings, investment and business formation/sustenance. The key institution/structure to handle this will be known as OFW Investment Assistance Center or OFWIAC and the general functions will be as follows:
• To serve as catalyst for the productive channeling of OFW savings to viable business and investments and minimize incidences of trial and error on the part of OFWs.
• To advise and assist OFWs on business and investment opportunities in the country and with a specific bias towards investments/businesses available in their own places of origin/domicile/residence;
• To promote a culture of frugality and savings and minimize the culture of consumption that is assumed to be pervasive among OFWs;
• To establish close linkages and networking system, for the benefit of OFWs, with government business regulatory bodies or institutions such as SEC, BODT, DTI and such other bodies that OFWs need to deal with when opening a business. This includes close linkages with Land Bank, DBP, TLRC and such other bodies or agencies that can assist OFWs in terms of sources of credit or technical know-how.
• To establish close linkages and networking system with non-government organizations (NGOs) and local government units (LGUs) that can facilitate the flow of investments/businesses in respective OFW localities.
The Basic Features of the Legislation
The basic features/provisions of this legislation should be as follows:
-The creation of the OFW Investment Assistance Center or OFWIAC should be separate from POEA and OWWA. The proponent, however, is open to the idea that this office/center be attached to the Department of Trade & Industry (DTI), as long as it will have a budget separate from and not subject to bureacratic demands/processes of the Department. It would however be preferable if the office will be attached to the Office of the President.
-The basic organizational structure is that there will be an OFWIAC Center, hereinafter referred to as Center, located in the National Capital Region (NCR) which will be the center of coordination for all activities of this government body and this will be headed by an Administrator with proven competence in the field of business, investment and finance. At the overseas jobsites, there will be OFW Investment Attaches or OFW Investment Assistance Officers which should have the rank of Attaches to emphasize the importance of this function for OFWs. The Investment Attaches will have function separate and distinct from Trade Attaches of DTI.
-At the regional level, there will be Regional OFW Investment Assistance Center to be manned by Regional OFW Investment Assistance Officers who will discharge the basic function on a regional basis. This is very important since the great majority of OFWs will are based in the provinces and the creation of regional offices will facilitate dispersal of OFW investments/businesses. The regional ROFWIAC center may be attached to the DTI offices, if practicable.
-Businesses formed by OFWs under this Act shall be exempt from income tax and shall be subject only the local taxes and permits from municipalities/cities. The entities so formed shall be exempted from requirements of the minimum wage law and shall only be required to provide the standard employee benefits such as SSS.
-The Investment Attaches shall be the first line of contact/action by the OFWIAC with OFWs and the proper functioning thereof provides the foundation for successful reintegration. The main function of the Investment Attache is to lay the groundwork for reintegration by working with the ACPs and helping and facilitating them in their own reintegration programs.
-The Investment Attache will be an organizer, a coordinator/facilitator, and an advisor. His job will be to help organize reintegration ACPs and help strengthen ACP movement towards reintegration. He also must be conversant and adept in issues related to business and investment and can funtion effectively as de-facto advisor to organizations and individuals. It is stressed that he will be able to give competent advise on whether an investment scheme is fraudulent or not or legitimate or not. His function is to serve as the first line of defense against scams and other illegal/illegitimate investment schemes and prevent OFWs from getting victimized by them.
-The Regional OFW Investment Coordinator (ROIC) will have similar function to OFWIA but his constituents will consist of returning OFWs and OFW families and relatives. This is a function as important as the OFWIA since the regional areas are the places where “the rubber meets the road”. It is the actual battleground by which the OFW applies everything that he has learned from the start of his exposure to reintegration at his jobsite abroad. If his exposure to reintegration abroad represents period of “theory acquisition”, his coming home to his locality and getting into business represents period of actual practice. This is where the role of ROIC is crucial.
It is the firm belief of the author that if and when the foregoing proposals are adopted and implemented, the road to successful reintegration for OFWs will have been paved. The two-wheeled reintegration cart will then proceed to stimulate economic activity in the countrysides and substantially improve the lives of OFWs and their families.
(Note: This paper is a revised and updated version of the original, written by Romie Cahucom and was presented and submitted on July 25, 2003 to OWWA Director and Team Leader for Kabayanihan Project Marianito Roque on occasion of the First OFW Conference on Reintegration held at Riyadh Marriot. The paper was written and submitted upon the request and prodding of Atty Jainal Rasul, the then outgoing Labor Attache in Riyadh.)