Kenyans increase remittances from diaspora

Remittances from Kenyans working abroad rose 15 per cent to $52 million (Sh4.1 billion) in June compared to the same month last year, boosting the shilling and domestic demand in an economy that is witnessing sluggish retail numbers.

Kenyans sent a total of $300.2 million (Sh24 billion) in the six months to June from $291.8 million (Sh23.3 billion) in the same period a year earlier, says Central Bank of Kenya (CBK).

“Remittances through June continue to track the long run average of $50 million per month,” Charles Gitari Koori, Central Bank of Kenya’s director of research, said in a monthly report.

Source markets

“The source markets for remittances have on average maintained the same shares with North America contributing 58 per cent and Europe 26 per cent of total remittances to Kenya in June 2010.”

The bulk of the money goes into household expenditure and supporting investments such as shares and real estate.

Currency dealers reckon that the increased flow will help support the shilling.

“Kenyans in the diaspora are able to borrow at lower rates in the countries they reside in for investing locally to earn higher returns,” said Mr Ken Butiko, a dealer at the Bank of Africa, adding the foreign currency could help shore up the value on increased supply.

Investment at the stock market and in the real estate sector is also likely to get a lift, while Kenyans who rely on remittances from their relatives and friends abroad to finance consumption could also get relief—offering new demand to retailers complaining of sluggish business.

A recent survey by consumer market research firm TNS Research International found that despite businessmen being optimistic of a swift recovery of the economy they continued to face flat sales.

Diaspora remittances have grown steadily over the last five years, providing at lifeline for thousands of Kenyans with relatives working abroad, while also adding fuel to the stock market and real estate.

Last year, CBK put the total remittance estimates at $609.2 million (about Sh48.7 billion) down from a record $611.2 million (Sh48.8 billion) the previous year.

But this year’s receipts are expected to surpass last year’s owing to the economic recovery of the US economy and stabilisation of the weak European economy — the major source of the remittances— which has suffered massive job losses in 2009 following the global economic meltdown that started the third quarter of 2008.

World Bank estimates put total remittances that come through the banking system and unofficial channels such as personal deliveries at over one billion dollars per annum.

Tea, horticulture and tourism are Kenya’s other chief foreign exchange earners. Supplies from these sectors are also expected to increase this year, save for horticulture.

Export earnings

Official figures show that export earnings from the horticulture sector dropped to Sh19.5 billion in the six months to June, compared to Sh26.2 billion in the same period a year earlier.

Players in the sector attributed the poor show to reduced demand from the European markets, which saw exports drop from 84,938 tonnes in the first half of 2009 to 74,398 tonnes in the same period this year.

Exports of horticultural products are Kenya’s biggest foreign exchange earner, raking in Sh71.6 billion shillings worth of flower, fruit and vegetable exports last year, down from 73.7 billion the previous year.

Players in the stock and property market say that the share of their business controlled by Kenyans working abroad has increased.

“Since the recovery of the stock market, we have seen tremendous growth of orders from Kenyans in the diaspora, which shows a strong interest in the economy,” says Mr Michael Gichohi, the managing director of Suntra Investment Bank.

Though the property market has been a red-hot asset class in terms of capital gains, the low demand from Kenyans living abroad due the tough job market in the West last year and locals balking at paying for overpriced apartments have kept home prices stagnant.