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How to leverage remittances for informal sector

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The impact of the informal economy on job creation cannot be overemphasised. FILE PHOTO | NMG 

In his book “The Mystery of Capital”, Peruvian economist Hernando de Soto firmly states that he is not a die-hard capitalist. On the contrary, he is an ardent believer in freedom, compassion for the poor and equal opportunity.

He however goes on to state that capitalism is the only system we know that provides us with the tools required to create massive surplus value necessary to achieve the aforementioned goals. It is with this thought in mind that I looked into possible avenues through which diaspora remittances can be leveraged as a tool towards achieving sustainable socio-economic development in the country.

According to the Central Bank of Kenya (CBK), diaspora remittance inflows improved to $224 million in December 2018, a 20 percent increase from the previous year. The steady rise over the years to a position whereby diaspora remittances is one of the country’s top foreign earners can be seen through two lenses. The first is that of increased support by the diaspora to their families back home. The other is that of the diaspora looking for viable local economic opportunities to invest in.

The impact of the informal economy on job creation cannot be overemphasised. The Kenya National Bureau of Statistics indicates that the informal economy accounted for 83.9 percent of total employment statistics in 2017.

Despite most of the jobs being of poor quality, one cannot deny the fact that this has been propelled by a shrinking availability of formal job opportunities. Beyond challenges such as low technical capacity and poor working conditions, access to finance has been one of the major stumbling blocks to the longevity of most informal business.

The Kenya Diaspora Alliance has indicated that about 25 per cent of remittances goes into investment while the rest goes into personal consumption. Plans are underway to establish a microfinance bank through which they can channel their investments. It is interesting to note that in Kenya, there are more than 10 savings and credit co-operative societies (saccos) that target Kenyans in the diaspora, who mainly invest in real estate.

What most Kenyans in the diaspora may not fully understand is that some of the money that they send back home ends up supporting informal businesses, albeit in an unstructured manner. A step that would ensure return on investment is by developing synergies with this sector through the microfinance bank, targeting a broader array of saccos . It is through such collaborative efforts that issues such as access wider markets for goods produced in the informal sector can be achieved by linking them to markets in the diaspora.

In this sense, the diaspora remittances can be a seen as a viable solution towards enhancing social equity, while at the same time ensuring that it’s investment portfolio is strategically broadened. By doing so, the diaspora will not only be in a stronger position to cement their role as a driver of the local economy, but will also have gone a long way in playing a bigger role in contributing to and owning the national development agenda.

ALEX LITU, Informal sector analyst.

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