A new study by the World Bank and the Central Bank of Kenya (CBK) indicates that Kenya received a total of Sh152 billion or $1.9 billion in the past 12 months – beating proceeds from traditional forex earners such as tourism (Sh100 billion), tea (Sh70 billion and horticulture’s Sh71 billion.
This volume of inflow translates to an average of Sh58,800 for each of the 2.61 million Kenyans who received money from abroad during the period and the number of recipients is equivalent to 14 per cent of the country’s adult population.
The study is the first of its kind between the two institutions and the first also to include transfers that are not received through the formal financial system, suggests that the inflow of remittances is three times more than previously thought.
The Central Bank estimate of annual remittances excluding informal channels was $609 million (Sh49 billion) last year, a marginal drop from $611 million in 2008.
This year’s receipts were expected to surpass last year’s owing to the economic recovery of the US economy and stabilization of the weak European economy -- the major source of the remittance - which has suffered massive job losses in 2009 following the global economic meltdown that started the third quarter of 2008.
Kenya, like many African countries that receive high volumes of remittances, has been found to be lacking in policies that could help channel the inflows to sectors that strengthen their role in enhancing economic growth – leaving much of it to go into consumption.
The joint survey established that half of the total amount received goes to meeting recipients’ daily expenses such as food, housing and medicare, with the other half going to key economic and social functions including start-up capital for small businesses (35 per cent), paying for university education (33 per cent) and buying or building houses (8 per cent).
Only a tiny four per cent of the remittance receipts are kept as savings.
Unlike the trend in other parts of the world, the World Bank study found that it is Kenya’s emerging middle-class is the main recipient of the remittances.
“This is unique because these are not people looking for money to make ends meet. In other parts of the world it is the needy, who get such remittances,” said Sergio Bendixen, an advisor with the World Bank.
Utilization of the remittances in growth projects such as housing and business start-ups is being taken as signaling the potential that exists to deploy the funds in enhancement of economic growth.
Mr Michael Fuchs, an advisor to the World Bank’s Africa region on finance and private sector development, said that in many African countries, remittances have moved beyond ordinary support to the subsistence needs of recipients to driving actual GDP growth.
“Governments must develop legal and regulatory frameworks that will help providers of remittances move beyond simple hand-outs. They need to design and deploy innovative and functional financial products and services that facilitate savings, loans, mortgages and insurance,” he said.
While a large fraction of the flows are made up of private transfers to family members and friends, the World Bank says policy makers and service providers could play an active and supportive role in leveraging its development impact by facilitating formal flows and reducing the cost of transactions, the World Bank said.
Kenya’s Finance and Foreign Affairs ministries have responded to the emerging trends with a raft of new regulations on remittances that offer preferential treatment to flows earmarked for investment.
The critical role that remittances have come to play in the Kenyan economy is further indicated in the attention it has received from the National Economic and Social Council (NESC), a key public policy organ.
Mr Bendixen said a revolution in information and communication technology (ICT) has helped drive the flow of remittances into Kenya citing cheaper call and internet charges that have offer easy linkages between remitters and recipients.
The US, England, the United Arab Emirates, Uganda and Tanzania are Kenya’s main sources of remittances with commercial banks, money transfer firms and mobile phone platforms such M-PEAS and Zap as the main channels used to transfer the funds.
The US and England’s leadership of the list of remittances source markets has however caused concern that ongoing economic turbulence in Europe and North America could culminate to a fresh dip in the volume of remittances in the medium term.
The World Bank has however allayed the fears terming the “situation would temporary” citing the recent resurgence in economies such as China, Germany, and India as well as demand for work force in the most developed countries where births have remained low.
“People will continue to move North and money will continue to move South,” said Mr Bendixen.
Remittances to sub-Saharan Africa are currently estimated to exceed $21 billion and are expected to grow by almost two per cent this year despite a weak global economy.
To increase formal flows and deepen their financial markets, the World Bank is asking African government to encourage competition and technological innovation that will help reduce costs and increase access to financial services among local recipients.
Benjamin Musuku, an official with the World Bank’s Finance and Private Sector department, said lack of connectivity to financial systems has hampered the growth of remittances in Africa and urged for improved access to such facilities.
The survey however recorded relative advancement in Kenya where more than four-fifths of recipients received their money through a bank or money transfer firm.
“Despite significant progress in the reporting of remittances throughout the world, most official statistics in sub-Saharan Africa still under estimate the true size of the flows. This is in part due to a focus of data collection efforts on formal channels such as banks,” the bank said.