Diaspora inflows grow at slowest pace in four years

Thursday, February 6th, 2020 00:00 |
US Dollar. Photo/Courtesy

John Otini

Diaspora remittances to Kenya grew at the slowest pace in four years following the expiry of a tax amnesty on foreign income in 2018.

Remittances grew by a paltry 3.7 per cent in 2019 compared to 38.6 per cent in 2018 as Kenyans abroad sought to take advantage of the expiring tax amnesty. The Tax Procedures Act granted a tax amnesty on income earned abroad.

With the tax amnesty period over, taxation imposed from July 2019 reduced the annual amount of cash sent back home by Kenyans living in the diaspora.

While remittances hit an all time high of Sh282 billion last year, surpassing all other sources of foreign currency, the growth nearly stalled.

Full impact

Central Bank of Kenya (CBK) said the 38 per cent growth in 2018 was also due to the full impact of affordable money transfer technologies such as Wave and World remit that have helped to boost the frequency of remittances.

“The cheap options have increased the frequency with which people send money as compared to before when people used to accumulate funds before sending due to the high costs,” according to CBK Governor Patrick Njoroge.

Before, money transfer was dominated by a few companies that charged high prices and whose reach was limited reducing the speed at which the money was being sent.

There has also been an in increase in investments products by commercial banks meant to attract Kenyans in the diaspora.

The low growth seen last year is also attributed to the Kenyan diaspora investing directly into Treasury bills and bonds diverting the amounts invested to foreign direct investments account as opposed to earlier being categorised under remittance inflows.

Kenya had previously experienced sustained growth of over 11 per cent  in remittance inflows for the last four years with the record growth in 2018.

“There were also fewer investment avenues in 2019 because the economy was not good,” said Willis Nalwenge of Kingdom Securities, adding that one cannot send money if they have no place to invest it.

Reports from the government show that remittance inflows in Kenya have played a significant role in narrowing the current account deficit with the inflows constituting a major foreign exchange earner.

Remittance inflows into Kenya cushioned the shilling against external shocks last year since the country’s precautionary fund from the International Monetary Fund (IMF) expired.

According to the Africa Economic Outlook from African Development Bank (AfDB) 2020, in 2018, remittances to Kenya constituted about three per cent of the gross domestic product (GDP).

The report also showed that remittances constitute a major source of household education financing with 10 per cent of the inflows received in Kenya being spent on education.

With reduced growth in remittances, the GDP growth rate currently forecasted at 5.9 per cent, could be lower than expected.

The current account deficit is also at risk of ballooning in the near future if reduced growth persists.

Not surprising

The Africa economic outlook report indicates that remittances to Africa have been rising since 2016, reaching new highs on the back of a pickup in global economic growth in 2017 and 2018 and rising migration (which almost doubled between 2000 and 2019).

Egypt and Nigeria followed by Morocco, Ghana, and Kenya account for 76.2 per cent of the remittances in 2018.

This is not surprising since they make up 44 per cent of international migration from Africa to high-income countries.

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