Fact: Need to Tap into Diaspora Remittance to weather the storm …

Nairobi, Kenya, Capital Markets in Africa — A remittance is money sent by a person in a foreign land to his or her home country. Due to the huge sums involved, remittances are now being recognized as an important contributor to the country’s growth and development. According to data from the Central Bank of Kenya, the remittance inflows to Kenya in August 2015 increased by 3.2 percent to US$ 132.9 million compared to USD 128.8 million in August 2014 and increased by 1.4 percent when compared to inflows in July 2015.

Breaking down the official numbers indicates that the remittances received on per capita basis equal about U$22 – that is using the Kenya population of 47.8 million, each person receives approximately twenty-two dollars in August.

Furthermore, the cumulative inflows from January 2015 to August 2015 amounted to US$ 1,018 million which resulted to an increase of 8.7 percent compared to US$ 936 million recorded for the same period in 2014. Also, the yearly total remittances had increased by 332 % from mere US$ 338 million in 2004 to US$ 1,428 million in 2014 and resulted to compounded annual growth return (CAGR) of about 15,5 percent over the period. The cumulative remittance amounted to about U$9,363 million since January 2004 to August 2014.

The chart below shows the evolution of remittances (in dollar term) and Kenyan Shillings exchange rate (against the US Dollar). Looking at the chart, there is a positive correlation between remittance  and Kenyan exchange rate (vs US Dollar). Also, the correlation of determination (R-square) is about 85 percent, that is exchange (KES vs USD) accounted for about 85 percent to change in remittance amounts by Kenya. This sound intuitive for a rational person to take advantage of Kenya Shilling depreciation.

In this current economy climate, it is advisable for African countries (with huge remittance) to tap more into the Diaspora remittance. At the moment, most of these funds were channelled into informal sector, so government need to create innovative ways to tap into these remittances to support the economy better.