Money from Kenyans abroad dips for first time in 13 years
Tuesday May 02 2023
Cash sent home by Kenyans living and working abroad in the three months to March fell for the first time since 2010 as inflation hit multi-decade highs in many countries, squeezing household budgets.
Remittances dropped to $1.016 billion (Sh137.4 billion) in the quarter to March from $1.024 billion (Sh138.5 billion) in the same period last year, Central Bank of Kenya (CBK) data shows.
Kenyans abroad typically send money to help their families and to invest in projects like real estate, with flow from the US accounting for about 60 percent of the total remittances.
The rising cost of living in countries like the US and in Europe on the back of costly energy, food and rent has been squeezing households and putting pressure on policymakers to bring the issue under control.
Lower-income minorities, including a significant share of Kenyans working in the US, have been hit particularly hard as a larger portion of their income goes to essentials such as food, transportation and housing.
Read: Remittances drive sub-Saharan Africa’s financial inclusion
Remittances are a major source of foreign exchange for Kenya alongside tea, horticulture and tourism.
“This signals that the cost of living in the source countries is putting pressure on remittances. Individuals, for instance, might be forced to put aside more income to meet rising expenses, reducing the pool of funds available to send back home as remittances,” said Ronny Chokaa, a research analyst at Genghis Capital.
The CBK data show that remittances from countries like the US, India and Qatar dropped in January and February.
Cash sent home by Kenyans in the US fell by $8.9 million (Sh1.2 billion) in the two months.
Inflation has started to show signs of easing from the multi-decade highs reached in many countries following Russia’s invasion of Ukraine.
The latest figures for most of the world’s largest economies still make for worrying reading, with price pressures remaining high as the war in Ukraine continues to keep energy and food prices elevated.
But in some countries, pressures have eased and energy and food wholesale prices have declined.
Economists and investors also expect inflationary levels to stabilise in the next few years.
Inflation stood at five percent in March in the US, from a high of 9.1 percent in May while the Eurozone cost of living measure fell to 6.9 percent from 10.6 percent in October.
Between 2015 and mid-2021 inflation in the US, Britain and Eurozone oscillated between 0.2 percent and 3.0 percent, a pointer that the current rates are above normal.
Higher inflation has also spread beyond energy to many other items, with rising food prices hitting the poorest consumers in particular.
Rising prices limit what households can spend on goods and services.
For the less well-off, this could lead to people struggling to afford basics such as food and shelter and wiring cash to friends and relatives in developing nations like Kenya.
Central banks have reacted with a series of interest rate rises, even though higher borrowing costs could exacerbate the squeeze on real incomes.
Kenyans in foreign countries in the past tended to send in more cash to support families and friends during times of economic crises or slowdown, inflows which also provided a buffer for the shilling against major international currencies, particularly the US dollar.
For example, the remittances in the pandemic year of 2020 defied projections of a sharp fall by analysts, including those from the World Bank, to grow Sh44.18 billion or 15.49 percent to Sh329.41 billion compared with 2019.
The inflows have since 2015 remained the largest source of foreign cash flows into Kenya ahead of tourists, foreign direct investments (FDIs) and leading agricultural exports such as horticulture and tea.
The Kenya Diaspora Remittances Survey Report, commissioned by the CBK, showed that the largest share of the remittances went into supporting families in buying food and household goods.
“The cash is also used in offsetting medical expenses, meeting education expenses, payment of rent and household utilities, payment for the costs associated with ceremonies, clothing needs of the recipient and to meet farming needs,” CBK analysts wrote in the report.
The survey findings showed that 20 percent of Kenyans abroad send money to their mothers followed by sisters at 15 percent and brothers at 14 percent.
About 11 percent of the diaspora community sends money to support religious activities, debt repayment and real estate.
Read: Why remittances to Kenya are resilient in the face of inflation
The average value of remittances sent in 2019 stood at Sh811,500 ($6000) per annum, with the cash often being sent monthly.
CBK governor Patrick Njoroge has repeatedly stressed the need to incentivise the diaspora community to invest back home to boost the creation of employment opportunities.
“There are all sorts of ways that the Kenyans out there could be supportive (to economic development), not just making investments in government securities and other assets like equities,” Dr Njoroge said earlier.
“They can set up shops here; they can have direct investments not just portfolio investments as has happened in other countries like India.”
The Indian diaspora is famed for growing and developing the country’s IT and business process outsourcing (BPO) industry, which was valued at over $150 billion (more than Sh15 trillion) back in 2015, according to conservative data by the Ministry of Overseas Indians Affairs.
India was then estimated to be exporting IT and BPO services valued at $78 billion (more than Sh17.7 trillion) and sustaining more than 3.5 million jobs.