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Spending Money on Refugees is an Investment, Not a Cost

Experiments like social impact bonds point the way to smart investments in integrating refugees. Leading development economist Owen Barder says the right incentives could unlock returns for investors.

Written by Owen Barder, Euan Ritchie Published on Read time Approx. 5 minutes
(L-R) Mahmoud Ali Hussein of Sudan, Bohdan Panchyshyn of Ukrainian origin and Aliona Beqiri of Albania are among some 20 refugees members of the Babel Interpreters association, working to help migrants integrate.FRANCOIS NASCIMBENI/AFP/Getty Images

Refugees are often regarded as a “burden” that European countries are urged to share by accepting their quota, and states in Europe are accused of waving through asylum seekers so that they become someone else’s problem. This idea is pushed further by institutions hostile to refugees, who point to strained public services, and focus on costs of processing and housing refugees as they arrive. Hence the rapid rise in the number of refugees being described as a crisis.

These upfront costs do exist. Refugees often arrive destitute, sometimes in need of counseling and with little knowledge of the local language or culture. It may take some time before they are able to become net contributors. But taking a longer view, there is no reason to view refugees as a cost: they can be a benefit to their host countries, not a burden. Spending money on refugees is an investment, not a cost.

Many refugees are well-educated – for example, it is estimated that nearly half of all Syrian refugees to enter Europe have a university degree. Many arrive with professional qualifications, potentially saving their new country the cost of training people from scratch to become nurses, engineers or other professionals. In the U.K., training a doctor from scratch costs roughly $340,000, whereas certifying a refugee doctor is estimated to cost only $34,000 – one-tenth of the cost. Unlocking these skills will benefit society both directly and through their tax contributions.

And in general, refugees are young. According to available U.N. data, only 4 percent of refugees in asylum countries are over 60 years old, an estimate that is also borne out by U.S. and Canadian data. The relative youth of the refugee population is a huge advantage to the advanced economies: An increase in the number of workers spreads the cost of caring for the elderly, alleviating the burden on the public finances caused by an aging population.

This is a particular problem in the West, where low fertility and longer life expectancy are driving up the ratio of those above retirement age to those under it. Accepting refugees may not significantly change this trend, but the change would be in the right direction, and give governments more leeway in adapting policies to address an older population.

The long-term potential of refugees is compelling. But whereas these benefits take time to be realized, and as refugees find employment and learn how to navigate an unfamiliar environment, the costs can be immediate. Finding accommodation and providing integration services is costly, and while evidence suggests refugees will pay more into treasuries than they would take over the long term, benefit usage can be high on first arrival. These costs loom large for communities and governments, even if refugees produce more than enough value to cover them in the long term. In order to unlock these gains, a way to address this temporal mismatch is needed.

Finance is a time machine: Shifting value across time periods is one of the key roles of finance. So long as the long-run benefits of resettling a refugee outweigh any short-run costs then with the right structure, private investment can be attracted to cover the short-term costs. The increase in national tax revenue can be harnessed to address the increase in services used locally. And a well-designed instrument can give investors the incentive to find out what works best for resettlement, by linking returns to outcomes.

The potential for a financial instrument to improve social outcomes while generating a return for investors has been demonstrated by the recent success of the Peterborough Prison Social Impact Bond. By linking the return on investment to the rate at which ex-prisoners reoffend, the pilot scheme reduced recidivism rates by 9 percent, enough to beat the target of 7.5 percent, thereby triggering a healthy payment to investors. Actors in the scheme had the incentive to find out what worked, and put pressure on service providers to adopt those lessons.

We believe that a similar instrument is needed for refugee resettlement – one that links the speed and success of integration, and extra value generated, with the return that investors obtain. This would provide an incentive to find out how to enable refugees to integrate quickly and move from needing support to making a contribution to their new country.

What accreditation is needed for the refugee to use their skills? How much should be spent on language lessons, and who should provide them? Answering the myriad questions associated with integration can improve the lives of refugees and generate wealth for investors and society, as well as – most importantly – for the refugees themselves. But while we continue to think of refugees as a burden to be shared, there will be too few people even asking these questions.

Future tax revenue is not the only source of value that could be harnessed to overcome the initial costs. The international community spends vast resources year after year, maintaining refugees as displaced people, often (though decreasingly) in camps where they suffer loss of dignity and autonomy, and must live off handouts of food packages. Until recently, the average time that a refugee was displaced was estimated to be as much as 15 years. That average has dropped in the last few years: not for the good reason that we are finding ways to end displacement, but for the bad reason that the average has been lowered by an influx of new refugees from Syria.

The average for refugees who have been displaced for at least five years is 21 years. None of us knows how long current refugees will be displaced, but there is no reason to assume it will be significantly less than the previous 15-year average. The resources used to sustain some refugees in such situations over such long periods of time could be better spent on investments to enable them to resettle. If the international community is willing to spend a certain amount of money on supporting refugees, why not support investment in refugees that costs the same but achieves a better outcome for everyone?

By treating refugees as an investment rather than a cost, innovative finance instruments can begin a virtuous circle. Refugees will be able to contribute more to their new communities, and those communities will increasingly recognize the value to them of refugees, broadening the political space for more resettlement. It is neither possible nor necessary to resettle all the 22.5 million people displaced across borders, and other measures will certainly be needed alongside resettlement programs. But for some refugees, innovative finance to support investment in resettlement has the potential to increase autonomy, dignity, and economic benefits, leading to better results for everyone.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Refugees Deeply.

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