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Don’t stifle the potential of diaspora remittances

By Mohamed Guleid | Jun 12th 2017 | 3 min read

It is estimated that close to 3 million Kenyans live and work abroad. The most famous person who forms part of the Kenyan diaspora is former US President Barack Obama. His roots are in Kenya and I guess like most of us who have adopted other countries as their home, Mr Obama sends money back to his extended family in Kogelo.

In his memoir, Dreams from My Father: A Story of Race and Inheritance, the former US President fondly makes references to his father’s Kenyan heritage and links. Indications of money being sent to Kenya can be inferred from the best-seller. Another famous Kenyan is Lupita Nyong’o. She definitely has invested in Kenya, if the big money received from her film career in the United States is anything to go by. There is Victor Wanyama, the Tottenham Hotspur footballer following in the footsteps of McDonald Mariga and Dennis Oliech.

Then there are countless other Kenyans in colleges and working abroad who remit billions every year. The bottom line here is that virtually every person who has roots in Kenya remits some of form of money back home. That props up the economy in many ways.

Diaspora remittances

In fact, the Central Bank of Kenya estimates that remittances in the first three months of this year totalled $432.6 million (Sh44.7 billion) compared to $415.6 million in quarter one of 2016. Last year, Kenyans abroad sent home Sh178 billion, making the remittances the largest source of foreign exchange for the country (nearly 2.5 per cent of the total GDP) overtaking tourism and horticulture, once the economy’s mainstay.

It is estimated close to $160 billion is remitted to African countries annually with Nigeria being the largest recipient. The Nigerian diaspora is one of the largest in the world. In 2014, $436 billion was sent to developing countries, setting a new record. Overall, global remittances totalled $582 billion in 2015. The 30 million-strong African diaspora fuels the continent's budget to the tune of 5 per cent of its total GDP. In 2012, the African Union issued the ‘Declaration of the African Diaspora Summit’.

This programme contained a wide range of action with political, economic and social cooperation as its main pillars. The African Union in particular has identified remittances as “a low hanging fruit” which if well harnessed, can increase the much-sought-after revenue for many African countries.

Despite such colossal amounts of money sent back home by Kenyans abroad, we still receive comparatively less despite the potential to expand this opportunity. Somalia at $1.3 billion receives more as a percentage of the GDP than Kenya. Nigeria on the other hand dwarfs Kenya with more than $20 billion annually. Kenya can increase the amount of inflow from remittances to around $6 billion per year. This however requires active State intervention.

That could include spreading the marvel that is M-Pesa beyond our borders. M-Pesa has transformed our lives. I guess a lot more Kenyans have money on the phone than in the bank. How then do we incorporate this in the two mostly used means of sending money back home? The Hawala system which, like M-Pesa, is largely based on trust, offers a great opportunity. Money is often sent via a network of agents.

The costs are much lower than the formal remittance outlets and are convenient to the sender. During my years in the diaspora, I often used the Hawala system to send money to my mother.

At that time, governments were less keen and a phone call was enough to facilitate sending hundreds of dollars. After the September 11, 2001 attacks, there followed restrictions on the informal system triggered by fears these could facilitate money laundering and aid terrorists access easy cash.

Because of the stringent rules on identity and limits, the formal system is restrictive. Many Kenyans working and living abroad are forced to limit the amounts they send due to tax implications. This is limiting the potential of a fast-evolving sector. Having recognised the benefits accruing from money from diaspora, East Asian countries like India and the Philippines actively support their diaspora and encourage them to remit more money.

Mr Guleid is the Deputy Governor, Isiolo County and NASA [email protected]

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