• Kenya is among the top three countries receiving the most international remittances across sub-Saharan Africa, after Nigeria and Ghana. Overall, the US, Saudi Arabia and UK account for nearly three-quarters of total annual inflows into Kenya.
• Kenyans living abroad sent home $357 million in March 2023, a 15.5 percent increase compared to February.
• As a whole remittances from the African diaspora are estimated at $95.6 billion annually, making it a key foreign exchange earner.     

Diaspora remittances have risen to become Kenya’s largest foreign exchange earner, surpassing the country’s key exports such as tourism, tea, coffee and horticulture. According to Central Bank of Kenya (CBK) data, diaspora remittances rose by 8.34 percent to $4.027 billion in 2022. In the same period under review, tea exports earned the country $1.2 billion, horticulture $901 million, chemicals $521 million, coffee $301 million and petroleum products $77 million. The widening disparity highlights the crucial role of remittances are playing in Kenya’s economy.

To further push up remittance receipts to $10 billion per year, East Africa’s economic powerhouse is deploying a number of initiatives, including bilateral labour agreements with key destinations.

Kenya’s state-backed diaspora office

The formation of the new state-backed diaspora office will not only lead to an influx of foreign investments, but also cater to the welfare of the Kenyan diaspora. The Cabinet Secretary for Foreign and Diaspora affairs, Dr. Alfred Mutua and Principal Secretary, Roselyn Njogu are giving Kenyan diaspora welfare office utmost priority.

This year, the World Bank projects a 3.9 percent growth on remittances to Sub-Saharan Africa, with strong inflows expected in Nigeria and Kenya.

On May 2, President William Ruto, whose administration has been keen to promote and support Kenyans in the diaspora hosted Canadian Foreign Minister Melanie Joly at Statehouse, Nairobi. Kenya and Canada are working on a labour migration framework, which will enable more Kenyans to get skilled jobs in North America.

President Ruto said Kenya will align the training of health workers at the Kenya Medical Training College and technical and vocational institutions with the unique needs of Canadian industry.

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“Kenya’s workforce is our greatest resource. It is well-trained and hardworking. Even as we invest in sectors that will create employment in the country, opportunities for Kenyans abroad are another way to lift up our young people,” he said.

Labour agreement to solve joblessness crisis

A follow up meeting between Kenya and Canada officials will be held in June this year to firm up positions between the two countries. A similar deal between Kenya and European Union economic powerhouse, Germany, is also in the works as the government moves to solve biting joblessness crisis.

The International Organization for Migration (IOM), says Kenya is among the top three countries receiving the most international remittances across sub-Saharan Africa after Nigeria and Ghana. An estimated 22.5 percent of Kenyan migrant workers reside in US, followed by the UK with 7.3 percent and the United Arabs Emirates (UAE) with 5.6 percent.

Data from the World Bank shows that improvements in financial technology, conducive regulatory environment and an increase in African migration over the past decade, have seen remittances become top source of forex in Africa. Remittances contribute to about two to three percent of sub-Saharan Africa’s GDP.

What more, Africans overseas represent a source of much-needed direct investment, expertise and skills that can be transferred back to in their home countries. Additionally, remittances also support many livelihoods.

Review of diaspora remittances to Kenya

The allure of greener pastures abroad has resulted in the relocation of many Kenyans to overseas countries for work and studies. Migration from Africa is majorly prompted by wide income inequalities, poverty and unemployment. The most popular destination is the US, which is leading source of remittances to Kenya.

Alternative destinations are Europe and the Middle East with the UK, Germany, Saudi Arabia and Qatar increasingly assuming a central role in diaspora inflows. Overall, the US, UK and Saudi Arabia account for nearly three-quarters of total annual inflows into Kenya.

According to CBK’s weekly bulletin, Kenyans living abroad sent home $357 million in March 2023, a 15.5 percent increase a month earlier. The industry regulator only measures the money remitted through formal channels, including commercial banks and other authorized international remittance service providers in Kenya.

US largest source of remittances

In January, Kenyans in the diaspora sent home $349.4 million, a 3.2 percent increase compared to $338.7 million recorded in the same month a year earlier.

“The remittance inflows continue to support the current account and the foreign exchange market. The US remains the largest source of remittances into Kenya, accounting for 58 percent, inflows in January” said CBK. In 2021, Kenya received $3.7 billion total remittances from diaspora while Nigeria and Ghana received $17 billion and $4.5 billion respectively.

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According to an analysis by World Remit, education, healthcare, and household needs are the main uses of remittances in Kenya. These sectors tend to have a multiplier effect on development. According to data from CBK, Kenyans living in the US sent a total of $2.33 billion back home in 2022, representing over 50 percent of the total $4.02 billion of diaspora remittances.

Allowing sending of money to bank accounts

According to Zepz, the holding company for WorldRemit, the easing of inflation in the US is expected to boost remittances. Globally, digitization remains a key driver for the growth of remittance services. WorldRemit has partnered with local banks, allowing direct sending of money to accounts, and M-PESA. Mobile money operators such as Airtel and M-PESA have set the trend in lowering money transfer rates, forcing banks to cut charges too.

President Ruto’s administration is keen on promoting and supporting Kenya’s diaspora community. Top government officials have visited Saudi Arabia, the second largest source of diaspora remittances and one of the biggest destinations for Kenyans seeking domestic work abroad.

Unfortunately, Saudi Arabia leads in reported cases of maltreatment of Kenyans by employers. Cabinet Secretary Dr Alfred Mutua and PS Roselyn Njogu have reiterated the new government’s commitment to look beyond the remittances and support the wellbeing of Kenyans living and working abroad. The pair have been holding meetings with Kenyan workers abroad sharing with them investment opportunities which they can tap.

Open trade opportunities for those overseas

“We want to take care of Kenyans, provide opportunities for them to get international jobs, to leverage them into positions and power overseas so that they can help those at home; and we want to open up trade opportunities for those who are overseas,” Dr Mutua said in a recent televised interview.

Last year, Zepz’s data for Europe, the Middle East and Africa (EMEA) shows users globally sent almost $2 billion to Kenya through its channels for the year ended December. With Kenya a leading recipient compared to other key markets where Zepz operates. So far, Zepz users have sent over $500 million to Zimbabwe, $300 million to Cameroon, and more than $190 million to South Africa during the period.

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The economic potential of diaspora bonds

Diaspora bonds have been identified as viable tools to facilitate long term positive impacts, for individuals and nations alike. Just what exactly are diaspora bonds?

The Migration Policy Institute describes a diaspora bond as a government debt security with investors drawn from the country’s nationals living abroad, their descendants, or those with another connection to the nation. The rates on offer usually incorporate a “patriotic discount”, allowing governments to buy at below market rates. Diaspora bonds represent new sources of investment capital that can be channeled to development projects.

Diaspora bonds are instrumental in allowing governments and potential project sponsors or corporates to diversify their funding sources, while borrowing at below-market rates and longer tenors, as these bonds are offered at a patriotic discount or during times of fiscal crisis.

The bonds can also raise money for larger long term costly projects such as infrastructure, power supply or telecommunications and social safety net programs, while satisfying the desire of diaspora communities to contribute to improving their countries of origin.

For instance, Kenya’s infrastructural bonds have been targeted at Kenyans living abroad but have also been open to other investors. President Ruto has promised to launch specific diaspora bonds in the near future. Four African countries including Ethiopia, Ghana, Kenya and Nigeria have already issued diaspora bonds and getting mixed results.

Can Africans in the diaspora invest a larger proportion of their remittances in bond and other instruments?

The December 2022 AfDB forum, titled ‘Development without Borders: Leveraging the African Diaspora for Inclusive Growth and Sustainable Development in Africa,’ held in Abidjan, was a wake up for African countries to promote their diaspora communities.

Financing through bond issuance

The meeting was held to discuss how best to harness the financial potential, offered by the huge remittances sent to the continent by the diaspora, as well as their varied skills and expertise. Key among the topics of discussion were diaspora bonds, securitizing remittances, promoting trade and investment, enhancing research, innovation and technology sharing.

According to the Bank’s statement, Securitized remittances would offer African governments’ robust investment collateral, and a source of financing through bond issuance.

“Diaspora bonds could serve as a countercyclical source of finance and social protection but banks and the rest of the financial services industry need to step up to create a cultural change towards investment.” AfDB president Akinwumi Adesina noted.

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In March 2022, while addressing Kenyans in London, UK, then Deputy President Ruto vowed to initiate a diaspora bond via a diaspora fund that will enable Kenyans living abroad to lend money to the government at an interest rate of 7 percent.

In tandem, they would get a return on investment. Currently, the President believes that investing the money in bonds would generate greater income and security for families in the longer term.

According to Brookings, African governments can actively take several measures to improve the investment appetite for bonds initiated by the African diaspora. For starters, bond issuers should endeavor to strengthen the governance of the bonds, including reporting in detail how the proceeds are used.

Link between bonds and country development

Further, policymakers should clearly demonstrate the link between the bonds and a credible country development strategy that advances sustainable economic growth and fosters a conducive investment climate.

Authorities should target specific projects or enterprises that produce sufficient economic value to support repayment of the bond, as well as meet significant needs of the broader population, such as telecommunications or infrastructure. By the same token, governments and bond issuers should work to enhance the credit of bonds in line with the standards of international development agencies and financial institutions.

With perspective to the myriad challenges faced by many African governments in responding to both the global inflation caused by the Russian-Ukraine conflict, coupled with by the Covid-19 pandemic; enhanced engagement with the diaspora could lead to new sources of investment capital, and pertinently diaspora bonds could prove pivotal.

Kenya among leading African countries in Remittances

According to the World Bank, remittances to Africa are a paramount source of international financing for developing countries. As a whole remittances from the African diaspora are estimated to amount to $95.6 Billion annually, making it a key foreign exchange earner.

An estimated 160 million people, who were born on the African continent, now live and work in other parts of the world. The money they send back to Africa via traditional banks, money transfer agencies and fintech operators accounts for 2-3 percent of Africa’s GDP, and supports the living costs of an estimated 200 million relatives.

In order to encourage more inflows from Africans working in the diaspora, the cost of transferring money to Africa needs to be reduced by the various financial institutions. Cutting these charges will encourage more Africans working overseas to transfer money back to Africa.

In April 2022, the World Bank launched a working group to improve data on remittance flows to support the SDG indicators on reducing remittance costs and increasing the volume of remittances. This will also support the first objective of the Global Compact on Migration, to improve data.

Africa should securitize remittances

“The African diaspora has become the largest financier of Africa! And it is not debt; it is 100 percent gifts or grants, a new form of concessional financing that is the key for livelihood security for millions of Africans. Because the flow of remittances to Africa is high, rising, and stable, it offers huge opportunities to serve as collateral to secure financing for African economies. African countries should securitize remittances to promote investments, especially for infrastructure on the continent.” AfDB president Akinwumi Adesina noted during the forum. He advocated that the diaspora should also vote in general elections, so that they feel more a part of the continent’s economic future.

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Wamkele Mene, Secretary General of the African Continental Free Trade Area (AfCFTA) secretariat, said that remittances offer a window of opportunity for Africa’s development against a backdrop of declining foreign direct investment and foreign aid. He added that operationalizing the AFCFTA, which came into force in January 2021, would ease the way for diaspora communities to invest in Africa.

Moreover, the Director General of the International Organization for Migration Antonio Vitorino, urged African countries to take a proactive approach to their overseas communities, by additionally tapping into diaspora tourism as potential areas of mutual interest for African governments and the diaspora.

The Deputy African Union Commission Chairperson Dr. Monique Nsanzabaganwa, recalled that African heads of state committed to engaging the diaspora as far back as 2012; by establishing a database of diaspora professionals, an African Institute for remittances, and an Africa diaspora investment fund, among other initiatives.

In October last year, the East African Community (EAC) headquarters set up a diaspora desk tasked with  facilitating East Africans living in the diaspora to invest and trade in the region.

Remittances projected to keep growing

EAC Secretary General Peter Mathuki noted that the contribution of East Africans in the diaspora enabled the region’s foreign direct investment to grow 35 percent to $8.2 billion last year.

However, countries in the region are not earning as much from remittances. According to the latest statistics, only Ethiopia and Uganda have managed to cross the $1 billion mark in the recent past. Ethiopia earned $2.53 billion in 2021, based on the National Bank of Ethiopia’s latest statistics, while Uganda earned $1.1 billion in the 12 months to July 2022. Over and above, diaspora remittances are projected to continue growing as the global economy strives to recover from inflationary pressures caused by the war and the Covid-19 pandemic.