Cash sent home by Kenyans living and working in the US fell for three months in a row to June as inflation in America reached a 40-year high, squeezing households’ budget.
Remittances from the US fell from $213.81 million (Sh25.23 billion) in March to $210.81 million (Sh24.88 billion) a month later, $195.15 million (Sh23.03 billion) in May and $192.37 million (Sh22.70 billion) last month.
Remittances are a major source of foreign exchange for Kenya alongside tea, horticulture and tourism.
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 the US 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.
“The cost of living pressure can be seen as an indicator of remittances moderating in the future if the current trend continues,” Churchill Ogutu, an economist at IC Asset Managers with a focus on East Africa, said on the phone.
“We haven’t seen a massive drop in remittances looking at the peak in March until May, and that’s probably because they [diaspora] are not digging much into their savings.”
The drop in the flow of dollars from Kenyans working and living in the US has coincided with the conflict between Russia and Ukraine, which has driven up the price of oil and commodities like wheat.
Food prices were up more than 10 percent in June in the US compared to May 2021, while energy surged more than 34 percent.
Inflation —the cost of living measure over a 12-months period — hit 9.1 percent last month in the US, the fastest rise since November 1981.
As the rising costs hit household purchasing power and prompt a pullback in spending, officials are warning that growth in many countries is at risk of a sharp downturn.
The US — which accounts for more than 95 percent of inflows from North America — remains the dominant source of remittances to Kenya, reflecting the large Kenyan diaspora in that country and its status as the world’s foremost economy.
The drop in cash from the US for the three consecutive months was reflected in the total flows from the diaspora community, which fell to $326.06 million from the all-time monthly peak of $363.58 million in March.
Central Bank of Kenya (CBK) data shows the drop in monthly inflows was $37.52 million, with the US accounting for 57.11 percent.
Kenyans in foreign countries historically appear to send in more cash to support families and friends during times of economic crises or slowdown, inflows which also provide 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 last December 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, while brothers sit at 14 percent.
About 11 percent of the diaspora community send money to support religious activities, debt repayment and real estate.
CBK governor Patrick Njoroge last year stressed the need to incentivise the diaspora community to invest back home to boost 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.
“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 are 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.
