Venezuelan exodus forces regional adjustment
But inevitably it has strained resources and caused tensions and there have been some examples of rising anti-immigrant sentiment in host countries. Chile, Ecuador and Peru have tightened entry restrictions. There are worries, too, over the fiscal and labour market costs of catering for such a large number of Venezuelan migrants. However, studies suggest that, over the long term, there will be gains to productivity and growth from migration trends, which we are currently working to take into account in our economic forecasts.
The sheer size of Venezuela's migration outflow is unprecedented in the region. According to data from the UNHCR, by June this year a total of 4m Venezuelans, or 13% of the total population, had left the country. Projections from an Organisation of American States (OAS) working group include a worst-case scenario in which, amid the country's continuing economic collapse, that number could more than double to 8.2m by end-2020. That would see Venezuela overtake Syria as the source of the world's largest refugee crisis.
The OAS calculates that, to date, international aid has totalled around US$5,000 per Syrian refugee. The comparable aid figure for Venezuela is only US$100 per refugee. As a result, governments are taking more of the strain. A majority of Latin American governments oppose the authoritarian left-wing regime of Nicolás Maduro in Venezuela. They promise ongoing solidarity and support for the victims of that country's humanitarian crisis. This is not just rhetoric. Colombia, in particular, has provided a place of safety for 1.3m Venezuelans, followed by Peru (768,000) and Chile (288,000).
While there is sympathy for the plight of Venezuelans across much of the political spectrum of these host countries, there have also been some signs of backlash. Opinion polls show a perception that immigrants bring with them increased crime rates (despite research in Colombia that shows the opposite). In June last year in the Colombian town of Subachoque, department of Cundinamarca, Venezuelan migrants were accused of criminality and threatened with reprisals. In August of the same year, the Brazilian army was sent in to restore order after violent clashes between local residents and Venezuelan migrants in the border state of Roraima.
Given their own problems with sluggish growth, governments, meanwhile, are concerned that a seemingly relentless inflow of Venezuelans could exacerbate domestic economic and social tensions. In June Peru introduced new rules admitting Venezuelans only if they can produce both a valid passport and a special humanitarian visa. Since passports are extremely difficult to obtain in Venezuela, the new requirement has a clearly restrictive effect. Ecuador limited entry to passport holders last year, and in July said they would begin to require visas as well. Chile has also tightened its requirements. The government there has introduced a one-year, renewable "democratic responsibility visa". One effect of the changes has been to strand a number of Venezuelans who lack the necessary documents on the Peruvian-Chilean border.
Costs versus benefits
In Colombia, host to well over 1m Venezuelan refugees, there is an open debate over the relative costs and benefits of the migration inflow. It is significant that the two countries have a 2,200-km-long and very porous border. In the 1980s and 1990s Colombia's violent domestic conflicts saw left-wing rebels and drug-trafficking cartels clash with government forces. As a result of the fighting, millions became internally displaced. There was also a net outflow to Venezuela, which at the time was experiencing comparative prosperity. After the turn of the century, however, the worsening political situation and the progressive collapse of the Venezuelan economy dramatically reversed the flow. Colombia is now seen as a safe haven.
Broadly speaking, the inflow of Venezuelans is generating short-term economic costs for Colombia, but with the prospect of delivering medium-to-long-term gains. A similar effect is expected among the other receiving countries. The Colombian government has eased entry requirements, allowed undocumented Venezuelans to achieve registered immigrant status, and provided universal healthcare and access to education, among other benefits. In September last year, Iván Duque, the Colombian president, stated that the total cost of these measures was US$1.5bn, or around 0.5% of GDP. The Ministry of Finance has estimated that providing these services over the next 3-5 years will carry an extra fiscal cost of somewhere between 0.4% and 0.6% of GDP per year.
A report by the OECD, however, argues that the increase in total labour supply could boost Colombia's growth potential. It notes that incoming Venezuelans have levels of education that are similar to or higher than those of the host population, meaning they may be able to have a positive effect on a key Colombian economic problem: falling productivity. Other international institutions agree that there will be future benefits. It is estimated that, as a result of the inflow, Colombia's workforce has already expanded by about900,000.From 2024 onwards, that is expected to add 0.1 percentage points to the country's annual GDP.
Much willdepend on whether the incoming migrants secure formal or informal jobs. About half of Colombia's labour force is formal, meaning that those employees pay taxes and qualify for state benefits and employment rights. The formal sector is seen as being the one most likely to deliver improved productivity. Coaxing more employees, whether locals or new arrivals, into formal employment will have a positive effect on government revenue and output. There is, therefore, an argument in favour of absorbing the short-term costs of the migrant inflow. Indeed, Colombia's fiscal responsibility law committee already modified the 2019 fiscal ceiling from 2.2% of GDP to 2.7%.
The impact on the local labour market remains unclear; however, it is believed that existing Colombian workers will, at the very least, face downward pressure on wages. Whether there is increased competition for jobs or not depends on a variety of factors including the age, education, industry sector and geographical location of the incomers inside Colombia. Based on conservative assumptions about employment take-up and a likely increase in informality, a report published last year by a financial lobby group, Asociación Nacional de Instituciones Financieras (ANIF), takes a more pessimistic view and concluded that, as a result of the Venezuelan influx, Colombia's unemployment rate might initially increase from 9.4% to 10-11%.
A positive outlook for the long term
The initial strain on local resources, as well as the later growth-positive effects, vary according to the size of the inflow relative to the population of the host country. The Venezuelan inflow represents 2.6% of Colombia's total population, 2.3% of the Peruvian population, 1.6% of the Chilean population, and 1.5% of Ecuador's population. Proportionately, the inflow has been much larger in parts of the Caribbean. Venezuelan migrants in Trinidad and Tobago represent nearly 3% of the total population while, in the small islands of Curaçao and Aruba, the proportion is around 15%.
For most regional governments, particularly those in the Caribbean, absorbing such a large population influx will prove extremely difficult. Given the limited state capacity of these governments, expanding public services to meet the needs of the new migrants will be challenging. In December 2018 the UN led an appeal by nearly 100 aid agencies, asking that US$738m be provided to help countries in the region provide food and health services for Venezuelan refugees. However, to date, less than one-quarter of this international assistance has been forthcoming, leaving a large funding shortfall for regional governments. Similarly, short-term disruptions to these countries' labour markets are likely unavoidable, owing to issues such as wage competition, inadequate job creation and skills mismatch. These factors are likely to undermine social cohesion and create problems for the integration of Venezuelans.
Nonetheless, we do believe that there is scope for progress on addressing these challenges over the medium-to-long term. Some countries,such as Peru, have already begun to develop and implement plans to improve the assimilation of Venezuelan migrants. At the same time, we expect moderate improvement in regional co-ordination to address the exodus of Venezuelans from their home country. In early July representatives of 11 countries in the region met in the Argentinian capital, Buenos Aires, for the Fourth International Technical Meeting on Human Mobility of Venezuelan Nationals. In this meeting, the countries adopteda road map to facilitate integration in the region of refugees and migrants from Venezuela. The road map included the adoption of measures such as the establishment of centres of information, reception, advice and assistance for refugees and migrants; a platform for orientation and development of human capital; and the strengthening of national systems for determining refugee status.
Assuming that public policy efforts by regional governments are sustained, we expect improved integration of Venezuelan migrants in their host countries over time. Therefore, in the long run, the host countries would stand to benefit from the strong productivity gains that are generally associated with mass migration, particularly of skilled labour. In the more immediate term, however, economic benefits are likely to be more modest and these were largely baked into our private consumption forecasts for countries in the region.