Like many in the Guinean diaspora, having successfully carved out a career as a professional in the US, Eric Guichard used to regularly send part of his income back to his home country on Africa's west coast. But, when he looked into investing in more profitable and socially beneficial ventures, such as infrastructure projects in Guinea, he struggled to find transparent investment platforms that offered reliable and credible information on new projects to remote investors. Therein lay his decision to launch Homestrings.
Created as a crowdfunding platform that facilitates diaspora investments into large-scale ventures, including government-issued infrastructure bonds and real estate projects, Homestrings quickly gained traction among investors. Since its inception in 2002, it has attracted more than $10m in investments and today it facilitates investment into projects across Africa, Asia and Latin America.
“Although there are several efforts that are run along similar lines to our work, we are the largest in terms of executing transactions,” says Mr Guichard. “Our digital crowdfunding platform provides post-investment administration services. We have two investment tracks: a high-net-worth track which gives [high-net-worth investors in the diaspora] access to a catalogue of private transactions, and a non-qualified track, which provides other investors with access to publicly available investment opportunities.”
More than 230 million people live in countries other than their place of birth, according to the World Bank, yet there remains a dearth of investment opportunities geared towards this market. As a result, remittances have become the primary mode of diasporan investment into their countries of origin.
Although remittances have served as a crucial lifeline for developing countries – critically keeping the families of migrants off the breadline – their wider national impact is limited. According to Homestrings, developing countries received more than $440bn-worth of remittances in 2013, but, according to the World Bank, just 10% of this was invested in higher value-added assets, such as household savings accounts, with 90% spent on basic necessities, such as food.
Mr Guichard maintains that governments have tried to direct more remitted capital into public projects – which will boost their economies over the longer term – but he says that one of the primary challenges governments face in mobilising this capital is overcoming the structural barriers in the diaspora's host states.
“Several governments have recognised the power of the diaspora,” he says. “Yet, their issue is how to redirect these flows into the productive sector, and that issue is much more structural and regulatory. To tap into the diaspora, these governments must go through the regulatory hurdles that are imposed by the host country’s government.
"For example, if the government of Kenya wants to sell securities to its diaspora in the US, the securities will have to be listed with the registered body in the US, which is the Securities Exchange Commission. Also, the Kenyan government will have to retain a distribution agent that is regulated to distribute the security to the resident diaspora population.”
One way that governments have bypassed this barrier is by creating information campaigns and diaspora networking forums. Rather than seeking financial contributions from their diaspora, these forums foster closer networks by directly engaging with migrant communities. For Joanna Murphy, the chief operating officer of Connect Ireland, an initiative that encourages the Irish diaspora to use their networks to introduce investors to Ireland, a key driver behind Ireland's success in attracting FDI is the indirect role that the Irish diaspora play as ‘connectors’ marketing Ireland to foreign companies as a place to do business.
Even if the diaspora represent a significant financial resource for countries, the networks that they cultivate in their host countries are equally valuable in showcasing their countries of origin as a business destination. Thus, Ms Murphy maintains that it is crucial for investment promotion agencies (IPAs) to directly engage with their diaspora to foster a closer sense of loyalty, which encourages migrants to effectively market their home countries as a place to do business.
“We are very close to our diaspora – we know them and they know us,” says Ms Murphy. “That is what makes Connect Ireland unique, because we do not ask anything of our diaspora in terms of a financial contribution. All we ask is that if they know a company that is expanding in Europe, they let us know and we will make a pitch for Ireland. In essence this initiative, which is called ‘Succeed In Ireland’, is a referral programme for our diaspora.”
Launched in 2012, as part of a broader move by the Irish government to boost the country's economic growth by creating more jobs, the ‘Succeed In Ireland’ initiative, which is supported by the country’s IPA, IDA Ireland, and run by Connect Ireland, aims to create 5000 jobs by attracting foreign firms to operate in Ireland.
With the diaspora set to play a central role – an individual that introduces a company to Ireland, which subsequently invests in the country, will receive €1500 as a reward – Ms Murphy maintains that IPAs that focus solely on attracting capital from the diaspora, rather than networking and engaging with them, could lose out over the long term. “Even if Ireland is home to 4.5 million people, 70 million people in the diaspora call it home,” says Ms Murphy. “We strongly believe that our diaspora will continue to help Ireland’s recovery well into the future.”
Other countries have worked to attract FDI through their diaspora too, but critics maintain that disparate attempts by governments to replicate the success of initiatives such as Homestrings and ‘Succeed In Ireland’ have experienced mixed success. Pointing to the disappointing performance of the Ethiopian government’s first diaspora bond, which was issued in 2008 to finance a hydroelectric power project, the World Bank reported that limited efforts in tailoring the bond to suit the needs of the country’s diaspora, coupled with insufficient information awareness campaigns, meant that the bond did not experience significant uptake among Ethiopia’s diaspora.
One of the key challenges that IPAs face when trying to mobilise support and capital from their diaspora is overcoming the high level of distrust about the business environments in their countries of origin. Moreover, in the specific case of diaspora bonds, governments, particularly in developing countries, continue to battle negative perceptions about their ability to meet their interest payment obligations, leaving their diaspora reluctant to invest in large-scale projects.
In addition, critics maintain that while IPAs have become vocal about their interest in mobilising diasporan investment, their investment promotion efforts are still overwhelmingly focused on attracting traditional foreign investors, such as large foreign enterprises. They argue that equal efforts have not been made to create incentives for small business owners and individual members of the diaspora wanting to create start-up enterprises in their countries of birth.
According to Brian Keating, a business development manager at IDA Ireland, IPAs must develop tailored incentives for their diaspora and create a balanced business case for prospective investors, instead of solely relying on the emotional appeal of the home countries of the diaspora.
“Even if someone who is part of the diaspora wants to make an investment, just because they have a connection to their country of origin this is not a strong enough reason for them to make an investment there,” says Mr Keating. “No one is going to invest just because their grandparents came from a particular country. That investment needs to make sense for them, and that is where the real challenge is.”
In addition to developing new campaigns to incentivise the diaspora to invest and promote their home countries as places to do business, Ms Murphy maintains that IPAs should not lose focus on creating traditional information campaigns, which inform the diaspora and dispel misconceptions about the business environment in their home country.
Highlighting Connect Ireland’s extensive advertising campaigns in Ireland’s major airports, as well as its efforts to create promotional videos and information brochures, Ms Murphy says: “We have a very significant presence in every major airport in Ireland, and we have promoted the Succeed In Ireland initiative in a double-page spread in [local airline] Ryanair’s in-flight magazine,” says Ms Murphy. “We have a brochure in every four- and five-star hotel in Ireland, and this promotes Ireland to companies that may want to set up abroad."
While Jamaica’s IPA, the Jamaica Promotions Corporation (Jampro), has also put similar effort into developing extensive information campaigns in key locations, including the US and the UK, both of which host large Jamaican communities, Diane Edwards, the president of Jampro, says that IPAs should also develop a deep understanding of the varied demographic and business interests of their diaspora, in order to create tailored incentives for prospective investors.
Ms Edwards maintains that Jampro has worked hard to foster direct ties with the Jamaican diaspora. For instance, during the 2012 Olympic Games in London, the IPA set up ‘Jamaica House’, which brought together Jamaica’s athletes and business personalities from the diaspora. But she says that IPAs must take more radical measures to closely map the evolving business needs of their diaspora. Highlighting the decision to develop a ‘diaspora mapping’ tool, which will enable Jampro to gather detailed intelligence on its diaspora, she argues that the IPAs able to closely monitor trends and develop tailored programmes for their international diaspora will be best placed to capitalise on their migrant communities’ economic potential.
“Close to 3 million Jamaicans live in the diaspora and we have a lot of initiatives that are aimed at them, including a diaspora conference that takes place every two years in Jamaica, and we invite diasporans back to interact with the Jamaican business community and Jamaican ministers,” says Ms Edwards.
“The Jamaican government is currently undertaking a diaspora mapping project, because what we need is further intelligence on who the diaspora is and how their demographics are evolving. This will give us a scientific way of knowing their age, where they live, what their interests are and how we can effectively cater to their business requirements.”