- Remittances from the diaspora play a crucial role in boosting family and forex incomes.
Just as the rest of the world, the coronavirus pandemic has drastically affected Kenya’s economy and with projections showing that the virus will be around for much longer than anticipated. This impact is expected to further deepen.
With most businesses stalled, particularly in the hospitality, tourism and exports sectors, it is expected that the economy will contract significantly. As it stands, the Central Bank of Kenya (CBK) has revised its initial estimate for 2020 growth from 6.2 percent to 3.4 percent.
Similarly, projections further show that the economy will grow by only 1.5 percent this year due to the pandemic, which is a sharp decline from the estimated 5.6 percent growth last year.
Although the government has implemented economic measures to ease the impact of Covid-19 such as tax reliefs and loan incentives to cushion individuals and businesses, more action might be needed to help the economy recover quickly after the pandemic.
Significant potential for Kenya and other African economies would be in forming alliances between the public and private sector in mitigating effects caused by inflation, unemployment and low-income flows.
In a report by the World Bank on the policy options of Kenya during the pandemic, there have been visible disruptions in trade and key sources of foreign exchange, which is expected to heavily weigh on remittances and foreign direct investment.
With the global economy looking into a possible deep recession, the country must find ways to boost remittances and bring in more foreign investment.
Association of Skilled Migrant Agencies of Kenya chairman Harun Ambenje says aside from strengthening bilateral trade, labour migration could be a possible solution that might help give the economy the much-needed boost post-Covid-19.
Vital source of Income
According to Mr Ambenje, remittances from labourers abroad can be a vital source of income for individuals and families.
He says through empowering the economic potential of individuals, the purchasing power will be improved, making it a crucial factor for the survival of local businesses.
“The government is currently giving out stimulus packages as well as tax incentives. However, there is no guarantee that this will boost the economy.
“Reports show that the tax being collected has heavily reduced. There is crucial and immediate need to come up with sustainable solutions to save our economy,” he says.
Latest reports show that counties have fallen behind on their target revenues, with Nairobi recording a 55 per cent drop of its target revenue. Similarly, the pandemic has also cut Kenya’s export sales to the East African Community by Sh3.5 billion – a figure that could drop if further pandemic restrictions are kept in place.
Ambaje argues that if Kenya is to tap into its potential of exporting labour post-coronavirus, the remittances and foreign investment being injected back to the country could help turn around the effects of the pandemic.
“There is so much potential for Kenya if only we had goodwill from the government concerning labour migration. When people think about working abroad, especially in Gulf countries, they usually picture casual jobs.
“However, we can export skilled labourers as well as those in white-collar jobs,” he says.
Kenya National Chamber of Commerce and Industry President Richard Ngatia says many developing countries, including Kenya, have benefited a lot from diaspora remittances. These remittances have even overtaken tourism, tea, and coffee, as a major foreign exchange earner.
“Studies have shown that the real estate sector in Kenya, for example, has been a major beneficiary of diaspora cash. Remittances have generally been critical at pushing up private consumption. If used well, diaspora remittances from Kenyans working and living abroad can lift this economy from the current stalemate,” he says.
About three million Kenyans are living abroad with CBK putting remittances for 2019 at Sh285.1 billion compared to Sh275.4 billion the previous year.
This is, however, significantly low when compared to other countries such as Egypt (Sh2.9 trillion), Nigeria (Sh2.3 trillion), India (Sh7.9 trillion) and Philippines (Sh3.4 trillion) in the same period.
Although these figures seem promising, there are fears that the Covid-19 pandemic is pushing rich countries such as the United States into recession with millions of jobs being lost. Kenya and other countries that rely on diaspora remittances will be hardest-hit.
Mr Ngatia says in April, there was a marginal decline in remittances coming into the country.
However, he pointed out that major sources of remittances such as the US and Europe did not register a major decline.
“This is encouraging given that most of these countries have started re-opening their economies after an extended period of lockdowns. Various reasons have been given for the bullish performance of remittances, including the fact that most Kenyans in the US, for example, offer essential services such as nursing,” he says.
“What this means is that going forward, money from Kenyans working abroad will be critical in pulling the country out of economic crisis occasioned by this pandemic.”
Demand for Kenyan Labour
As a skilled migrant agent, Mr Ambenje has in the past connected workers to employers abroad, further stating that there is a high demand for the human resources in Kenya, which is grappling with an unemployment crisis.
“The government has previously promised to create a million jobs per year but we have since fallen short of this target.
“The unemployment rate is still high. And now, with the ongoing pandemic, it is bound to increase. We can easily fill this gap by sending people to work in other countries but we are not marketing our labour abroad,” said Mr Ngatia.
The pros and cons of remittances have long been argued, with some economists stating that too much dependence on diaspora inflows can stall the development of a country by limiting its ability to create sustainable local economies.
Similarly, others argue that the effects of remittances on the economy are almost not felt as recipients use the income to meet their daily needs such as buying food and clothes as opposed to making investments.
However, for the remittances to work efficiently, countries such as Kenya need to develop policies that promote stable growth, particularly in rural areas.
Some economists believe that funds from remittances can improve the livelihoods of receiving households as they promote access to education, health and capital investments.
Mr Ambenje says for Kenya to unlock its potential in labour migration, there is a need for government goodwill in relation to favourable bilateral policies, strengthened public-private partnerships and functioning institutions.
“Some of the bilateral agreements that we have are skewed to favour other countries as opposed to benefiting Kenyan workers.
“There is also a need for collaboration between the ministries of Labour and Foreign Affairs in promoting labour migration and providing a support system for our migrants,” he says.
While hosting a regional ministerial forum on labour migration earlier this year, Labour Cabinet secretary Simon Chelugui acknowledged that the lack of proper laws and policies is a significant challenge in managing labour migration.
The National Employment Authority is mandated to provide a framework for employment promotion interventions abroad. However, Mr Ambenje says the State agency does little to foster labour migration.
This is further worsened by unnecessary delays in processing migrant papers as well as high levels of corruption at various State institutions.
“The government needs to work together with migrant agencies given the economic value that persons working abroad bring in the country.
“The frustrations that agents undergo will consequently hurt our economy amidst these challenging times,” he added.
Mr Ngatia, however, commends the efforts the government is placing to protect the economy including President Uhuru Kenyatta’s eight-point stimulus package, noting that it should be followed through.
“Several measures, fiscal and monetary, that have been implemented are good.
“However, Kenya could also tap the billions flowing in from our brothers and sisters abroad, by putting in place a proper mechanism that will enable them to invest in Kenya. It should also create a conducive environment, get rid of unnecessary red tapes to encourage the flow of foreign direct investment into the country,” he says.