Remittances fall as US, EU austerity measures bite

By John Oyuke

Remittances from Kenyans living or working abroad dropped slightly to $92.7 million (Sh7.88b) in July, from $99.5 million (Sh8.46b) in June, as widespread austerity measures put pressure on household budgets in the West.

Central Bank of Kenya (CBK) said on Tuesday the 6.8 per cent decline reflected a fall in inflows from North America and Europe.

Close economic relations between the US and the EU is seen to have brought the crisis of the Eurozone to the United States.

According to the Office of US Trade Representative, the trade between the EU and the US involves more than seven million employees. As much as $3.6 billion circulate through their hands every day. It turns out that the slowdown and decline in exports creates the shortage of jobs not only in Europe but also in the US.

However, the 12-month cumulative average remittances flow has sustained an upward trend from the second half of 2010. According to CBK, in the year to July, total remittances inflows stood at $1,101 million, 42.86 per cent higher than the total remittances in the year to July last year, which stood at $770 million.

The average remittances inflow amounted to $91.7 million up from $64.2 million recorded in the year to July last year. CBK attributed the pick-up of remittances inflows over the years to various factors among them, improved data collection techniques reflecting proper classification of remittances data by commercial banks.

Other factors contributing are the increased participation of the Diaspora in the primary issues of Government bonds and high competition among money transfer service providers that has reduced transaction charges.

The partnership between local mobile phone companies with international money transfer players such as the Western Union has also reduced the cost of remitting the money, and also made it more convenient to send the funds back home.

When used well, remittances are seen as on the way of creating employment for the youth in addition to creating demand in the economy, and therefore triggering growth of different enterprises.

The country’s development blue print Vision 2030 identifies remittances as one of the measures to be encouraged in order to tap Diaspora investment potential.

Kenya has been toying with the idea of issuing a Diaspora investment bond but has instead concentrated on encouraging the Diaspora to invest in the existing bonds and the results have been positive.