Refugees Fleeing 'Economic Collapse' Revive the Economy [Seungseop Song's Financial Light]

7.7 Million Venezuelan Refugees in Neighboring Countries
Economic Impact Analysis of Host Nations
World Bank: "Growth Rate Will Continue to Rise Until 2030"

Venezuelan refugees lined up in Pacaraima, Brazil. Photo by International Organization for Migration

Venezuelan refugees pitching tents in Panama City, the capital of Panama. Photo by International Organization for Migration

Venezuela is a country facing a serious refugee crisis. For years, millions of refugees have been leaving the country. It is not because of war. As the economy collapsed and it became difficult to make a living, people chose to become refugees for survival. The impact spread to neighboring countries. Refugees from Venezuela moved to nearby South American countries. Recently, however, an interesting study was released. It showed that the economic outlook of countries that received Venezuelan refugees is bright. What secret was hidden between refugees and economic growth?

7.7 Million Refugees Flee to Neighboring Countries Amid Political and Economic Crisis

The Venezuelan refugee issue began around 2015. Although there was no war with guns and knives, a severe 'economic crisis' struck. At that time, the president was Nicol?s Maduro, who is still in office today. The following year, inflation reached 800%, indicating how disastrous the economy was. To make matters worse, a drought occurred in the same year. Venezuela heavily depends on hydroelectric power, and as electricity shortages worsened, the economic crisis deepened. Power outages became a daily occurrence, and companies suffered significant production setbacks.

Maduro, President of Venezuela
[Photo by Yonhap News]

The political crisis also accelerated the refugee problem. International experts believe that dialogue between the government and the opposition collapsed in Venezuela in the early 2010s. Amid this unstable political landscape, an incident occurred. In April 2019, a military coup against the Maduro regime took place. Although the coup failed, opposition leader Juan Guaid?, who was the head of the National Assembly, declared himself president. At that time, over 60 countries, including the United States, recognized Guaid? as president.

How many refugees left Venezuela due to this turmoil? According to estimates by the World Bank (WB), the number is as high as 7.7 million. Considering that Venezuela's population was about 28.2 million in 2021, this shows how many refugees emerged. In fact, the Venezuelan refugee crisis is the largest in Latin American history, surpassing the number of Syrian refugees displaced by war. As the number of refugees increased, Venezuela's economy further declined, creating a vicious cycle that fueled poverty and insecurity, which in turn increased the number of refugees.

Where did the Venezuelan refugees go? Of the 7.7 million, more than 6.5 million fled to South American and Caribbean countries. The country that received the most refugees is Colombia. In 2018, Colombia had 640,000 Venezuelan refugees, but last year that number surged to 2.47 million, about four times higher. Chile also hosts 440,000 Venezuelan refugees. Peru is estimated to have 1.5 million, and Ecuador about 500,000.

Because the number of refugees is so large, concerns began to arise. These included worries about the living conditions and safety of refugees, as well as the possibility that the economies of host countries could suffer. A sudden influx of hundreds of thousands of foreign nationals could lead to increased public spending and social unrest.

World Bank: Migrants Will Boost Growth Rates Until 2030

Analysis report on Venezuelan refugees released by the World Bank (WB) on the 20th of last month. Photo by Homepage Capture

However, the research results were quite the opposite. At the end of last month, the World Bank released an analysis showing that Venezuelan migrants are revitalizing the economies of South American countries. Researchers projected the GDP growth rates of Chile, Colombia, Ecuador, and Peru?countries with large Venezuelan refugee populations. The results showed that from 2017 to 2030, Venezuelans will increase growth rates by 0.1% to 0.3% annually.

Of course, there are negative effects as well. When the population increases, the burdens a country must bear also rise. In particular, healthcare expenditures and public service costs increase. The study found that due to the public services required for migrants, short-term spending could increase by about 0.1% to 0.5% of GDP. However, these costs are expected to decrease rapidly, and ultimately the economic growth effects will be greater, which is the main point of the study.

Why is the growth outlook bright for countries that accepted refugees? The World Bank cites 'improvements in the labor force' as the reason. According to the British daily The Guardian, 3 million Venezuelans arrived in Colombia, and they are likely to take low-wage public sector jobs. Colombians prefer cash-paid jobs, which led to serious shadow economy problems, but as Venezuelans began working in public jobs, the economic structure improved. It emphasized that Venezuelans filled essential but undesirable jobs, such as bus drivers, which Colombians tend to avoid.

The labor force of Venezuelans is also evaluated as excellent in the South American continent. The World Bank considers the main working age of Venezuelans to be 25 to 45 years old, which is younger than the average working age in South America. Their education level is also high, typically about two years more than locals. For example, Chilean nationals receive about 12.3 years of education, while Venezuelans in Peru have received 14.4 years. Compared to Peru (11.3 years), Colombia (10.1 years), and Ecuador (9.7 years), Venezuelan refugees have higher education levels.

However, challenges remain. The key is how society harmoniously accepts refugees. If social integration does not proceed smoothly, the cost of conflicts could increase. The World Bank also points out that 26% to 40% of Venezuelans living in other South American countries have experienced discrimination. There have been criticisms that despite having sufficient qualifications and experience, Venezuelans are forced into low-quality jobs simply because of their nationality. The World Bank advises that policies promoting 'economic inclusion' should be established to harness the economic benefits of migrants.

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