Kenyan diaspora top foreign exchange earner.

[misterk]

Kudos to all Kenyan's in the diaspora.
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The Money Binge
Written by Bob Bell & James Makau

27-July-2007: Kenya has emerged second to Nigeria among African recipients of foreign exchange remittances with households headed by women leading beneficiaries of offshore money transfers from individuals.

The money is largely used by relatives to fight poverty through education and health support as well as investments in real estate and shares listed at the Nairobi Stock Exchange.

Remittances are now the single largest source of forex ahead of tourism and horticulture in Kenya and, in Sub-Saharan African (SSA) countries, the transfers exceed official development assistance, a new report by the International Monetary Fund (IMF) says.

The remittances have the potential to strengthen local currencies were they to be injected at the same time in an organised manner, but have had little impact because they are disbursed piecemeal throughout the year.

In Kenya, it is estimated that at least $1 billion is being remitted annually

up from about $750 million in 2005. Between 45 per cent and 65 per cent of the money is received informally and therefore not captured in official records.

They funds alleviate poverty, smooth consumption, affect labor supply, provide working capital, and have multiplier effects through increased household spending. Anecdotal evidence suggests that most often women head the recipient households.

For the most part, remittances seem to be used to finance consumption or investment in human capital, such as education, health, and better nutrition.

But in Kenya, remittances are being used also for investment in the stock and the property market. Recently Nairobi Stock Exchange chairman Jimnah Mbaru revealed that his company Dyer & Blair Investment Bank was in negotiation with several clients abroad on how they could invest their savings in the stock market.

Property developers and managers Villa Care chief executive Daniel Ojijo said that 40 per cent of the buyers for new houses are actually Kenyans residing abroad. The realtors have promotions planned for the diaspora.

“Property has minimal risks for those residing abroad and many are buying for rental receipts waiting until they come back. They may even decide to live in the houses once they come back,” Mr Ojijo said.

Another study quoted in the IMF paper say that migrant remittances to Ghana serve to smooth household consumption and welfare over time, especially for food crop farmers, who are typically the most disadvantaged socioeconomic group.

In absolute terms Kenya, Nigeria, and Senegal are the largest recipients of remittances in the region.

Remittances form a quarter of all exports for at least four countries on the continent. For Lesotho, Cape Verde, Uganda, and Comoros, for instance, remittances have since 2000 amounted on average to more than 25 per cent of export earnings.

“Remittances can also contribute to stability by lowering the probability of current account
reversals. Because they are a cheap and stable source of foreign currencies, remittances are
likely to stem investor panic when international reserves are falling or external debt is rising,” says the report.

It goes on to say that remittances may in fact be self-correcting as an overvalued currency deters remittances, and hence Dutch disease effects - impact of remittances on the real exchange rate and export competitiveness - are not sustained.

It says: “However, studies in Latin America and Cape Verde have found evidence that remittances do have Dutch disease effects on the competitiveness of the tradable sector.”

In Sub-Saharan Africa (SSA), remittances are part of a private welfare system that transfers purchasing power from relatively richer to relatively poorer members of a family or community.

But the same report say that while remittances can facilitate the entry of households into formal financial markets, only a fraction of the sums remitted by migrant workers from SSA finds its way into the formal system.

“The high fees formal providers charge is a deterrent for poor migrants who want to send small sums of money home, and even if a migrant has access to banks the recipient may not. So migrants rely more on import-export operators, retail shops, and currency dealerships—but there are no records of the transactions these conduct,” the report says.

Banks are not always interested in the small remittances market and analysts quoted find that concentration in the banking sector, financial risk, and exchange rate variability typically increase transaction costs.

“Financial sector reforms that address any or all of these structural problems in the receiving and sending countries are also likely to lower the cost of remittances,” says the report.

In 2005, remittances to the 34 SSA countries reporting are estimated to have been about US$6.5 billion.

Remittance flows to SSA are relatively small, four per cent of total remittances to developing countries and just 33 per cent of those to India, which receives the most. In contrast, countries in Latin America and the Caribbean received 25 per cent of all remittances, as did the countries of the East Asia and Pacific region.

Relative to GDP, too, the volume of remittances to SSA is generally smaller than in other developing countries. On average remittances in the region are about 2.5 per cent of GDP, compared to almost 5 per cent for other developing countries.

However, there are striking exceptions in SSA. In particular, remittances were almost 28 per cent of GDP in Lesotho, and more than 5 per cent in Cape Verde, Guinea-Bissau, and Senegal.