Cash from Kenyans in US plunges on American inflation
Friday 22 July 2022
Cash sent home by Kenyans living and working in the US fell for three straight months through June as inflation in America hit a 40-year high and squeezed household budgets.
Remittances from the US fell from $213.81 million (Shh25.23 billion) in March to $210.81 million (Shh24.88 billion) a month later, down from $195.15 million (Shh23.03 billion) in the month May and $192.37 million (Shh 22.70 billion) last month .
In addition to tea, horticulture and tourism, remittances are an important source of foreign exchange for Kenya.
Kenyans abroad typically send money to help their families and to invest in projects such as real estate, with inflows from the US accounting for about 60 percent of total remittances.
The rising cost of living in the US due to expensive energy, groceries and rent has put pressure on households and pressured policymakers to get the problem under control.
Low-income minorities, including a significant proportion of Kenyans working in the US, have been hit particularly hard, with a larger portion of their income going to basic necessities such as food, transportation and housing.
“Pressures on the cost of living can be taken as an indicator that remittances will ease going forward if current trends continue,” Churchill Ogutu, an economist at IC Asset Managers who focuses on East Africa, said over the phone.
“We didn’t see a massive drop in remittances in March through May and that’s probably why [diaspora] don’t dig much into their savings.”
The drop in dollar flow from Kenyans working and living in the US has coincided with the conflict between Russia and Ukraine, which has pushed up prices for oil and commodities such as wheat.
US food prices rose more than 10 percent in June compared to May 2021, while energy prices rose more than 34 percent.
Inflation — the measure of the cost of living over a 12-month period — hit 9.1 percent last month in the US, the fastest rise since November 1981.
As rising costs hurt households’ purchasing power and lead to a drop in spending, officials warn that growth in many countries is at risk of a sharp slowdown.
The US – which accounts for more than 95 per cent of inflows from North America – remains the dominant source of remittances to Kenya, reflecting the country’s large Kenyan diaspora and its status as the world’s leading economy.
The decline in US cash for the three consecutive months was reflected in total inflows from the diaspora community, which fell to $326.06 million from a monthly peak of $363.58 million in March.
Data from the Central Bank of Kenya (CBK) shows that the decline in monthly inflows was $37.52 million, with the US accounting for 57.11 percent.
Kenyans abroad historically seem to send more cash to support families and friends during times of economic crisis or slowdown, inflows that also provide a buffer for the shilling against major international currencies, particularly the US dollar.
For example, in the 2020 pandemic year, remittances defied forecasts of a sharp decline by analysts, including those from the World Bank, and rose by Sh44.18 billion, or 15.49 percent, to Sh329.41 billion compared to 2019.
Inflows have been the largest source of foreign cash flows into Kenya since 2015, 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 last December showed that the bulk of remittances went to helping families buy groceries and household items.
“The money will also be used to meet medical expenses, meet education expenses, pay rent and household utilities, pay expenses associated with ceremonies, meet recipient clothing needs, and meet agricultural needs,” wrote CBK- Analysts in the report.
The survey results 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 payments, and real estate.
CBK Governor Patrick Njoroge last year stressed the need to incentivize the diaspora community to invest at home to encourage job creation.
“There are many ways that Kenyans out there could support (economic development) other than just investing in government securities and other assets like stocks,” said Dr. Njoroge.
“You can set up stores here; You can make direct investments and not just portfolio investments as is the case in other countries like India.”
The Indian diaspora is famous for the growth and development of the country’s IT and business process outsourcing (BPO) industry, which was worth over US$150 billion in 2015 (more than 15 trillion schillings).
At the time, it was estimated that India exported US$78 billion (more than 17.7 trillion shillings) worth of IT and BPO services and sustained more than 3.5 million jobs.