In 2021, remittance inflows to Kenya reached an all-time record of USD 3.71 billion, an increase of more than ten times since 2005. Central Bank of Kenya (CBK) data further shows that in the first nine months of 2022, remittance inflows equaled USD 2.9 billion, a slight improvement from USD 2.7 billion in the first nine months of 2021.
In line with the rising cost of living and inflation globally, the importance of remittance inflows to countries like Kenya are vitally important. A recent multi-country study by the global payments company, WorldRemit, shows that migrants in different countries are adjusting their behaviors amid rising inflation in order to maintain their financial obligations to family and friends back home. For example, 49% of respondents claimed to go out to eat less and 46% cook more at home to save on day-to-day expenses.
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Money sent back home by Kenyans overseas plays a crucial role in our national economy. Below are some of the ways diaspora remittances have shaped the economy in the last decade.
- Boosting the forex exchange market
Kenya’s key exports include tourism, tea, coffee and horticultural products. These have historically been the main sources of export earnings and foreign currency for the country. However, with the explosive growth in remittances in the last decade, the source of forex growth is now shifting. In 2021, Kenya earned USD $1.2 billion (Sh146.5 billion) from tourism and USD $1.1 billion (Sh136 billion) from tea. Remittances, on the other hand, came in at USD $3.71 billion (Sh449 billion) in 2021, more than double the combined earnings from tourism and tea.
The forex exchange market is important to national economic stability as it allows Kenya to not only pay for imports, but also instills confidence in the economy. This leads to strong asset values in the financial markets and contributes to wealth creation.
- Driving social development
One of the main uses of remittances in the country is education expenses such as tuition fees, books and other school supplies. Education has a well-documented long-term developmental impact. Another main use of remittance is medical bills and healthcare related spending, which helps support many families’ economic and social welfare by reducing out of pocket medical expenses.
- Supporting long-term investments
While the majority of Kenyans overseas send money home for household needs such as education and medical expenses, an increasing number are sending money for long-term investments in sectors such as real estate, agriculture and retail. In recent years, investment companies focused on linking Kenyans in the diaspora to local investment opportunities in real estate have ballooned.
Some Kenyans are also investing in businesses back home. These long-term investments not only support economic growth, but also contribute to the development of skills in the local job market.
- Accelerating globalization
As the contributions of Kenyans globally get more widely recognized, more and more Kenyans are warming up to the idea of relocating abroad for new opportunities. A 2019 study by Afrobarometer found that 35% of Kenyan youth were willing to relocate overseas if given a chance.
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Globalization has its advantages. It helps people acquire skills and experiences that they sometimes cannot get at home. It also creates new markets overseas and this has a direct impact on job creation back home.
Kenyans overseas are indeed heroes that we need to celebrate as they continue to prop up Kenyan households and economy through remittances.
Many of them stay for months and even years without physically seeing their loved ones back home, yet the connection is never lost and only grows stronger.
For those sending, a good starting point is advocating for safer, more reliable, and more affordable digital channels of sending and receiving money that allow them to get the maximum value from their hard-earned money.
Mr. Kanyali is the Regional Manager, East Africa, WorldRemit
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