Remittances to low, middle-income states to grow 2.2% – World Bank

Remittance flows to low and middle-income countries are expected to increase by 2.2 percent to $565 billion (Sh66.1 trillion) in 2022, the World Bank has projected, with Kenya gaining.

The East African economic powerhouse is ranked third among the biggest recipients in Sub-Saharan Africa, after Nigeria and Ghana.

The growth is up from the $553 billion (Sh64.6 trillion) in 2021, a year that Kenyans living and working abroad sent home a record Sh421.6 billion ($3.718 billion)–Central Bank of Kenya (CBK) data.

This was an all-time record for the diaspora remittances across a single year.

According to the World Bank, the projected growth this year comes with anticipated recovery in major host economies such as Saudi Arabia, the United States, and the United Arab Emirates.

The US is the largest source for remittances to Kenya accounting for 55.9 per cent of total flows, which have become a leading source for Kenya’s foreign exchange earnings, overtaking tea, coffee and tourism. 

Monthly remittances into the country were captured at Sh41.35billion in April.

This was however a slight drop from $363.6 million (Sh42.2 billion in March, but higher than the $321.5 million (Sh37.3 billion) sent in February, with the strong dollar against the shilling giving receivers more cash back at home. 

Last year, flows to low- and middle-income countries surpassed the sum of Foreign Direct Investment (FDI) $259 billion and Overseas Development Assistance ($179 billion) in 2020.

The main drivers for the steady flow, according to Work Bank, included fiscal stimulus that resulted in better-than-expected economic conditions in host countries.

There is also a shift in flows from cash to digital and from informal to formal channels, and cyclical movements in oil prices and currency exchange rates.

The true size of remittances, which includes formal and informal flows, is believed to be larger than officially reported data, though the extent of the impact of Covid-19 on informal flows is unclear.

“As Covid-19 still devastates families around the world, remittances continue to provide a critical lifeline for the poor and vulnerable,” said Michal Rutkowski, global director of the social protection and jobs global practice at the World Bank.

Supportive policy responses, together with national social protection systems, should continue to be inclusive of all communities, including migrants, Rutkowski notes.

Digitization remains a key driver for growth of remittance services, according to global payments firm–WorldRemit, which has partnered with local banks, allowing direct sending of money to accounts, and Mpesa.

 “Going forward, innovation and customer service are also going to be a big differentiator for service providers as competition is intensifying in the market,” the firm’s management told the Star yesterday.

Education, healthcare, and household needs are the main uses of remittances in Kenya, an analysis by WorldRemit indicates.

Transaction costs however remain high, the World Bank notes, with global average cost of sending $200 at 6.5 percent, more than double the Sustainable Development Goal target of 3 per cent.

Average remittance costs were the lowest in South Asia (4.9 percent), while Sub-Saharan Africa continued to have the highest average cost (8.2 percent).

“Supporting the remittance infrastructure and keeping remittances flowing includes efforts to lower fees,” Word Bank notes in its report.

During the pandemic, WorldRemit for instance lowered prices for international transfers in over 450 of its larger corridors in Africa.

The lowered prices, the firm says, allowed customers to send more to family and friends via the mobile app or website to the various African corridors, where Kenya was a major beneficiary.

Meanwhile, experts have called for better collection of data on remittances given its growing significance as a source of external financing for low- and middle-income countries.

There is a need for, in terms of frequency, timely reporting, and granularity by corridor and channel, they advice.

“The resilience of remittance flows is remarkable. “They can no longer be treated as small change,” said Dilip Ratha, lead author of the report on migration and remittances and head of the Global Knowledge Partnership on Migration and Development( KNOMAD).

Apart from the US, the Middle East has been identified as one of the key drivers of inflows to Kenya as the number of Kenyans securing jobs in the region continues to rise.

The gulf states include Saudi Arabia, United Arab Emirates, Qatar, and Bahrain, key destinations for domestic jobs.

The number of Kenyans in the Middle East has risen to above 97,000 from about 55,000 in 2019m, according to the Labour Ministry.

Globally, the number of Kenyan migrant workers is over four million, with a greater percentage being skilled youth.