The Economic Role of Refugees: Evidence from Sub-Saharan Africa

The massive inflow of refugees in Europe has garnered unprecedented attention from the media, international agencies, and policymakers, and generated an intense debate about adequate policy responses. However, refugees in Europe make up only a fraction of the world’s forced migrations. According to the UN Refugee Agency, 86 percent of the world’s refugees live in developing countries, and many of those countries have historically experienced large inflows of refugees and adopted different policies in response.

A recent paper by experts at the World Bank studies former refugee experiences in the developing world and applies these lessons to the current crisis in Europe. The authors examine the situation of refugees and Internally Displaced People (IDP) in sub-Saharan Africa and focus on refugees’ impact on the economies of their host communities. In studying Tanzania, Uganda, and Kenya, countries that have been welcoming refugees for decades, the authors find that refugees have a positive impact on the local economies of their host communities. However, there are distributional consequences: refugees have also created an adverse effect on low-income groups in their host countries.

To understand the economic interactions between refugees and local hosts, it is worth noting that the majority of refugees and IDP in sub-Saharan Africa have lived in protracted situations, which the UN defines as situations in which their lives may not be at risk, but their basic human rights and essential economic, social, and psychological needs remain unfulfilled. In addition, most of the refugees in Africa live in organized camps, which has important consequences for the economic relations that are developed in local communities.

In the three cases the authors analyze, they find a positive impact of refugees on local communities, generated mainly by an increase in market size and a boost in the construction sector. With regards to market size, the authors find evidence of increased demand for agricultural products, allowing local farmers to sell more produce and hire cheap refugee labor. In the case of Tanzania and Uganda, the increase in demand for agricultural products was accompanied by an increase in prices. There were distributional consequences, as low-income hosts struggled to afford those products, and many farmers benefited from the price increase. In both cases, the locals with lower education and income became more marginalized.

The authors also observe increased investment in roads to serve refugee camps and find evidence that local contractors benefit from contracts with international agencies and NGOs. Infrastructure construction also benefits the local population by improving the provision of local public goods, such as transportation.

This case study suggests that refugees can positively contribute to the economic activity of their host countries. Host countries benefit from allowing migrants to work legally and strengthen their asset-based capacities. Secondly, the study argues against the notion that refugees increase poverty in their host communities. In fact, the authors emphasize that, although there is a positive correlation between the number of refugees hosted in a country and the nation’s level of poverty, the positive correlation might be explained by the fact that refugees are originally from poor countries, and they tend to move to neighboring countries that are usually also poor.

These case studies offer an important counterargument to the notion that hosting refugees imposes an economic burden on host communities. Rethinking the economic role of refugees can help policymakers find sustainable solutions for the current refugee crisis, by aligning the economic incentives of refugees with those of local citizens. But, in order to take advantage of the new economic opportunities that refugees generate, it is necessary that government policies reflect these incentives. For example, countries could ease the restrictions imposed on refugees and allow them to participate in a formal sector of the economy.

Article Source: Verwimp, Philip and Jean-Francois Maystadt. “Forced Displacement and Refugees in Sub-Saharan Africa: An Economic Inquiry,” World Bank, Policy Research Paper, No. WPS7517 (2015).

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