Easing US inflation to boost remittances to Kenya, Africa

Kenya among top receivers according to Zepz, holding company for WorldRemit and Sendwave.

In Summary

•In January, Kenyans in the diaspora sent home $349.4 million (Sh44.2 billion) , a 3.2 per cent increase compared to $338.7 million (Sh42.8 billion) in January 2022.

•This was also an improvement from the remittances of Sh44. 1billion in December last year, and Sh42. 6 billion in November.

A cashier at a Nairobi forex bureau counts dollars and shillings.
A cashier at a Nairobi forex bureau counts dollars and shillings.
Image: FILE

The easing inflation in the US which cooled for the seventh consecutive month in January, albeit high Fed Rates is expected to boost remittances to Kenya, analysts predict.

This, even as Kenyans in the diaspora continue to work on squeezed budgets to maintain sending money back home in support of families, friends, and personal investments, with the country among the leading recipients according to Zepz data, the holding company for WorldRemit and Sendwave.

US, which is Kenya’s top remittances source, recorded an annual inflation rate of 6.4 per cent in January, down from 6.5 per cent in December which had eased from a four-decade high of 9.1 per cent earlier in June.

During the month (January) Kenyans living and working abroad sent home $349.4 million (Sh44.2 billion) ,a 3.2 per cent increase compared to $338.7 million (Sh42.8 billion) sent in the same month in 2022.

This was also an improvement from the remittances of Sh44. 1billion in December last year, and Sh42. 6 billion in November.

The back-to-School needs on school fees ws among drivers of remittances in January, according to WorldRemit.

According to the Central Bank of Kenya (CBK), the United States remained the leading source of remittances to Kenya.

However, the Middle East is slowly emerging among the top sources of inflows.

Overall, the US, UK and Saudi Arabia account for nearly three-quarters of total annual inflows into Kenya.

Cumulative inflows for the 12 months to January 2023 totalled $4,039 million (Sh511 billion), compared to $3,778 million (Sh478 billion) in January 2022, an increase of 6.9 per cent.

 “The remittance inflows continue to support the current account and the foreign exchange market,” notes in its weekly bulletin.

The US remained the largest source of remittances into Kenya, accounting for 58.5 per cent of the inflows during the first month of the year.

CBK only measures the money remitted through formal channels, including commercial banks and other authorised international remittance service providers in Kenya.

Remittances to Kenya are currently top in foreign exchange, ahead of tourism, tea, coffee, and horticulture exports.

Last year, Zepz’s data for Europe, the Middle East and Africa (EMEA) shows users globally sent almost $2 billion (Sh253.1 billion) to Kenya through its channels for the year ended December, with Kenya a leading recipient compared to other key markets.

 Zepz users have sent over $500 million to Zimbabwe, $300 million to Cameroon, and more than $190 million to South Africa during the period.

A survey by WorldRemit, which is currently a top platform for channeling inflows to Kenya, last year indicated Kenyans abroad have been working around personal expenditure, including cutting their spending to afford to send money back home.

The survey conducted in June revealed 49 per cent of respondents reported that they ate out less, 46 per cent saved on day-to-day expenses, while 28 per cent limited social gatherings to save money.

About 25 per cent of the respondents opted for public transportation rather than driving to save, part of which saw them continue to support families and friends back at home.

“Migrants’ resilience and commitment to their loved ones back home has proven to be vital, especially in a period where household expenses are increasing around the world,” said Jorge Godinez Reyes, Head of the Americas, WorldRemit.

This latest study proves that even during times of financial instability, many migrants are making adjustments to maintain the regular flow of remittances to families and loved ones back home, Reyes noted.

With easing inflation, inflows are expected to remain stable this year with a possibility of increasing compared to last year, WorldRemit projects, with the US remaining a top source.

The survey involved 3,000 international money senders living in the USA, Australia, and the United Kingdom, aged 18 years and above.

They voluntarily responded to a 13-question survey about how cost of living and inflation had changed behaviours when it comes to sending remittances between June 15 and 29 June.

The survey took place on the a consumer research platform- Attest, targeting people who have sent remittances in the past year.

WorldRemit, which serves more than five million customers across 130 countries worldwide, including Kenya, received responses from 1,000 migrants in each of the countries surveyed, bringing the total number of respondents to 3,000.

Globally, 78 per cent of remittance senders agree that the cost of living has personally affected them.

Education, healthcare, and household needs continue to be the main uses of remittances in Kenya, WorldRemit notes.

A strong flow of remittances is expected to support Kenya’s usable foreign exchange reserves which stood at a low of $6.860 billion (867.9 billion)–3.84 months of import cover as at February 23.

CBK however says this meets its statutory requirement to endeavor to maintain at least four months of import cover.

This year, World Bank projects a 3.9 per cent growth on remittances to Sub-Saharan Africa, with strong flows to Nigeria and Kenya.

Remittances are a vital source of household income for low- and middle-income countries, Word Bank notes.

“They alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children in disadvantaged households,” the lender says.

Studies show that remittances help recipient households to build resilience, for example through financing better housing and to cope with the losses in the aftermath of disasters.

 “Migrants help to ease tight labor markets in host countries while supporting their families through remittances,” said Michal Rutkowski, World Bank Global Director for Social Protection and Jobs.

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