INFLOWS

Diaspora remittances drop 5.1% in February on low season

Last week, the shilling dropped to a historic low of 114.52

In Summary
  • The US remains the largest source of remittances in Kenya, accounting for 63.6%
  • The cumulative inflows for the 12 months to January totaled $3.84 billion (Sh437.7 billion)
CBK Headquarters
CBK Headquarters
Image: FILE

Kenyans living abroad sent home $321.5 million (Sh36.6 billion) in February, 5.1 per cent lower compared to $338.7 million (Sh38.3 billion) in January.

The Central Bank of Kenya (CBK) attributes the drop to seasonal factors.

The weekly bulletin by CBK, however, shows the amount was 23.5 per cent more compared to the similar period last year where $260.3 million (Sh29.7 billion) was remitted back home.

The cumulative inflows for the 12 months to January totaled $3.84 billion (Sh437.7 billion) compared to $3.15 billion (Sh359.1 billion) in the same period in 2021, a 21.4 per cent increase.

The country has recorded the highest levels of diaspora remittances since last year despite the Covid-19 pandemic that has been crippling the global economy since late 2019. 

The United States remains the largest source of remittances in Kenya, accounting for 58 per cent of the total inflows. The dominance is, however, slowly being chopped off.

It has shed almost 10m per cent since November last year when it accounted for 67.3 per cent of the inflow.

Gulf states such as Saudi Arabia, United Arab Emirates, Qatar, and Bahrain have also emerged as important drivers of remittances, in line with the growing number of Kenyans immigrating to these countries in search of jobs.

Tanzania, Uganda, and South Africa lead as the top African source markets for remittance inflows into Kenya.

Diaspora remittances are now Kenya's forex earner after overtaking tea, coffee and tourism in 2017. 

Tea and coffee earnings have been shrinking in recent times due to high global supply, eroding prices.

Tea prices at the weekly Mombasa auction dropped for a second consecutive week but remain above the preferred two-dollar mark.

A kilo last week averaged $2.53 (Sh287.53), market data by the East African Tea Trade Association (EATTA) shows, down from $2.58 (Sh293.22) last week, and a four-year high of $2.65 (Sh301.17) two weeks ago.

This was the highest so far this year has opened the auction at $2.45 (Sh278.44) at the start of January.

The tourism sector which used to be the second most forex earner was the worst hit by Covid-19 with sector revenues declining by 80 per cent in 2020 compared to 2019 when the country realised Sh162 billion.

Data from the ministry of tourism shows the tourism sector directly contributes 4.4 per cent of the Gross Domestic Product (GDP).

However, the sector showed recovery signs last year, with international arrivals increasing 53.3 percent, to 870,465, up from 567,848 in 2020.

According to the latest industry data by the Tourism Research Institute (TRI), the numbers almost doubled tourism earnings to Sh146.5 billion, up from Sh88.6 billion the previous year.

The inflow of diaspora remittances did little to cushion the shilling against major international currencies, trading 114.31 against the greenback on Friday compared to 114.14 the previous week. 

The local currency, just like others globally have lost value in the past two years as global trade slowed on Covid-19 and the ongoing Russia/Ukraine crisis. 

Last week, the shilling dropped to a historic low of 114.52 as the demand for the greenback by importers persisted.

This, despite regular innervations by the apex bank to iron out volatilities, led to a weekly shrinking of the forex reserve.

The country's usable foreign exchange reserves are at $7.97 billion  ((4.88 months of import cover) compared to Sh8.01 billion the previous week or 4.90 months of import cover.

The banking regulator, however, downplayed the persistent drop, saying the available stock meets its statutory requirement to endeavour to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover.