Kenyan money in the US plunges on US inflation
Money sent home by Kenyans living and working in the United States fell for three consecutive months through June as inflation in the United States hit its highest level in 40 years, weighing on the household budget.
Remittances from the United States fell from $213.81 million (25.23 billion shillings) in March to $210.81 million (24.88 billion shillings) a month later, 195.15 million (23.03 billion shillings) in May and 192.37 million dollars (22.70 billion shillings) last month. .
Remittances are a major source of foreign exchange for Kenya, alongside tea, horticulture and tourism.
Kenyans abroad generally send money to support their families and to invest in projects such as real estate, with flows from the United States accounting for around 60% of total remittances.
The rising cost of living in the United States due to high energy, food and rent costs has strained households and pressured policy makers to bring the issue under control.
Low-income minorities, including a significant share of Kenyans working in the United States, have been particularly hard hit, as more of their income goes towards essentials such as food, transport and housing.
“The cost of living pressure can be seen as an indicator of moderating remittances in the future if the current trend continues,” Churchill Ogutu, an economist at IC Asset Managers specializing in Africa, said over the phone. from the east.
“We haven’t seen a massive drop in remittances looking at the peak in March through May, and that’s probably because they [diaspora] do not draw much from their savings.
The decline in the flow of dollars from Kenyans working and living in the United States has coincided with the conflict between Russia and Ukraine, which has driven up the price of oil and commodities like wheat.
Food prices rose more than 10% in June in the United States compared to May 2021, while energy jumped more than 34%.
Inflation – the measure of the cost of living over a 12-month period – hit 9.1% last month in the United States, the fastest rise since November 1981.
As rising costs affect household purchasing power and cause spending to fall, officials warn that growth in many countries is at risk of a sharp slowdown.
The United States – which accounts for more than 95% of inflows from North America – remains the main source of remittances to Kenya, reflecting the large Kenyan diaspora in this country and its status as the world’s largest economy. .
The decline in cash from the United States for the three consecutive months was reflected in total flows from the diaspora community, which fell to $326.06 million from the all-time monthly high of 363.58 million dollars in March.
Data from the Central Bank of Kenya (CBK) shows that the fall in monthly inflows was $37.52 million, with the United States accounting for 57.11%.
Kenyans in foreign countries historically seem to send more money to support family and friends in times of crisis or economic downturn, inflows which also provide a buffer for the shilling against major international currencies, particularly the dollar American.
For example, remittances in the pandemic year of 2020 defied forecasts of a sharp decline by analysts, including those at the World Bank, to reach 44.18 billion shillings or 15.49% at 329.41 billion shillings compared to 2019.
Since 2015, inflows have remained Kenya’s main source of foreign cash flow ahead of tourists, foreign direct investment (FDI) and major agricultural exports such as horticulture and tea.
The Kenyan Diaspora Remittances Survey Report, commissioned by the CBK, showed last December that the bulk of remittances went to help families buy food and household items.
“The money is also used to offset medical expenses, cover education expenses, pay rent and household expenses, pay for costs associated with ceremonies, the recipient’s clothing needs, and to meet agricultural needs,” wrote CBK analysts in the report.
The survey results showed that 20% of Kenyans abroad send money to their mothers, followed by sisters at 15%, while brothers sit at 14%.
About 11% of the diaspora community send money to support religious activities, debt repayment and real estate.
Last year, CBK Governor Patrick Njoroge highlighted the need to engage the diaspora community to invest at home to boost the creation of job opportunities.
“There are all sorts of ways Kenyans could support (economic development), not just by investing in government securities and other assets like equities,” Dr Njoroge said.
“They can set up shops here; they can have direct investments and not just portfolio investments as has happened in other countries like India.
The Indian diaspora is renowned for the growth and development of the country’s IT and business process outsourcing (BPO) industry, which was valued at over $150 billion (over $15 trillion). shillings) in 2015, according to conservative data from the Department of Overseas Indian Affairs.
India was then estimated to be exporting IT and BPO services worth $78 billion (over 17.7 trillion shillings) and supporting over 3.5 million jobs.