Diaspora investment

Diaspora investment represents a significant avenue for fostering development. Defined as financial instruments that generate assets, diaspora investment enables migrants and their descendants to channel funds back into their countries of origin. The resulting economic benefits hold promise for driving sustainable development when effectively harnessed, for example serving as non-traditional financing to enhance entrepreneurs’ access to credit and capital in the countries of heritage. This in turn empowers aspiring business owners to pursue ventures that might otherwise be beyond their reach. The transformative potential of diaspora investment has captured the attention of governments and private sector actors, spurring concerted efforts to encourage and expand its role in the investment landscape.

This page is based on the “Learning by doing” dossier in which we reflect on challenges, roles diaspora play in investment, creating innovative investment solutions and identifying effective diaspora engagement. It draws on EUDiF’s capacity development actions in Egypt and West Africa, as well as the Benchmark Report: Diaspora Investment Practices.

Read on for a précis or download the publication for the complete reflection.

Learning by doing: Diaspora investment

Key challenges

Investment can be a complex space and challenges arise due to micro and macro influences, with certain specificities in the context which can prevent diaspora from investing confidently.

Investment experience

For some diaspora, there is a lack of knowledge and skill to begin investing despite interest and availability of finances.

Awareness of investment options

Diaspora often find it difficult to locate relevant and timely information on investment opportunities and processes.

Investment infrastructure

Investment potential is limited when there is a lack of accommodating infrastructure, including supporting institutions and enabling national and economic contexts.

Knowing the diaspora

To connect with diaspora, entities with investment opportunities require understanding and ability to effectively locate and engage with diaspora investors.

Economic challenges in the domestic market

The domestic market may not encourage diaspora investment (due to local currency fluctuations, barriers to market insight etc).

Political landscape

Political instability and lack of trust in the government is a barrier to investment, particularly during election periods.

Financial regulation

There is a need for policies and institutions that ensure financial protection and encourage investment.

Institutional capacity

Many public institutions do not have experience in connecting and engaging with diaspora for investment.

Tracking diaspora investment

There is a lack of institutional capacity and monitoring systems to monitor and evaluate diaspora investment, compounded by the difficulty of identifying diaspora investment.

Diaspora roles in the investment ecosystem

Diaspora encompasses people with professional skills and talents that are of great benefit when applied to diaspora investment and creating a conducive environment. Below we explore some of the roles we have observed in the EUDiF actions, research and overall diaspora investment ecosystem.

Role

Description

Investors

Diaspora investors seek investment opportunities available in their countries of origin and residence through their connections, for example from their networks back home and within their communities in the residence country. Some diasporas actively seek opportunities that will enable social impact as well as economic growth.

Mentors

Diaspora who have invested in their country of origin as well as those who have formalised their knowledge of the investment ecosystem can be mentors to new or expanding investors, entrepreneurs, businesses and other relevant ecosystem actors.

Brokers

Brokers compile and share information, knowledge and understanding of investor interest and demand in their countries of origin and residence. They develop investment products tailored to investor interest, assist in contract negotiation, facilitate deals and build partnerships.

Initiators

An individual or entity that identifies potential partnerships, initiatives, or opportunities and establishes connections or collaborations to advance them.

Lobbyists

The strong links and common objectives between diaspora members result in the formation of organised individuals and groups that can advocate and lobby for policies that support the development of an enabling environment for investment and in support of the investor.

Matchmakers

There are those who have remained connected and engaged with their countries or region of origin and can initiate matches between investors and investees, seek investors in response to in-country demand and generally support all interested parties.

Promoters

Diaspora can act as ambassadors of domestic opportunities and promote investment packages in accessible and attractive ways for the diaspora market and other investors.

Collection: Mentoring initiatives

Diaspora investment in action

Through two capacity development actions, EUDiF worked with diaspora as investors and as mentors to explore practical and innovative pathway to harness diaspora investment for development. Both initiatives generated lots of knowledge about diaspora investment, but three recommendations stand out for any institution aspiring to tap into the potential of diaspora investment:

Recognize and seek expertise from new partners

Tailor engagement and speak the right language

Leverage diaspora expertise through mentoring

Enhancing governmental capacity to attract expatriate investments into Egypt

At the crowdlending training, diaspora mentors and local entrepreneurs discussed crowdlending practices for local businesses in Benin