Remittances To Kenya: They’re Dropping
So, someone on this blog called “working stiff” left a comment where he/she predicted that this global financial crisis would have an impact on the Kenyan and he/she gave the example of remittances (he/she predicted that they would go down).
This week, the chairman of the NSE, in talking about the recent slump at the exchange, cited the drop in remittances to the country. According to him, remittances have gone down by almost 50% (from a high of Ksh70 billion to the present level of Ksh 40 billion - see video below).
I’ve said here before that many people have underestimated the role that these remittances have had on the overrall Kenyan economy. They fueled the drive in prices at the stock exchange, they are fueling the real estate boom in Kenya right now and I’m sure that these remittances are also providing an important “buffer” for many Kenyan families who are being hit by inflation hovering around 30%.
I’ve been saying over and over again, that Kenya is not a country that produces goods for export. So, where are people getting the cash to survive? A lot of it is coming from remittances. I’ve only been able to identify one group in Kenya that produces good for export and they are the farmers (who sell specific cash crops).
However, outside of this core group, what else does the country produce? very little, if anything. Therefore, what you essentially have, is an economy that is almost entirely based on “servicing” these farmers. So, you have banks, mobile companies, restaurants, etc, etc….that provide goods to this core group of people, but it’s a very small and “internalized” economy because that pool of people just isn’t large enough. This is the reason remittances have become so important to the overall economy (our level of production has not increased substantially and our level of innovation just doesn’t exist at all and until these two things change, remittances will remain crucial to the economy.
Discuss..
Why have the remittances decreased? This is the main question.
I do not think that it necessarily has to do with the financial chaos in the West. This may partly be true, but there could be other reasons.
I for one think that the post election violence made some Kenyans (and others) in the diaspora to re-evaluate their long term investment options. Even if the violence may not have completely discouraged them from investing, it may have made them hesitant hence the decrease in remittances.
I know a Kenyan who had built a magnificent house in Eldoret but it was burnt down. The house was worth approximately Ksh5M which he had all sent from here. He has told me he will never invest beyond Naivasha. And since Nairobi & Central are too competitive (and he has no roots there), he is not actually investing in Kenya right now. Luckily, he is sorted over here with regards to immigration matters and he does not actually NEED to invest in Kenya. There could be others like him.
But I also get your point about a very weak Kenyan economy. This however is always linked to the political situation.
KE, you are right and wrong. Yes we export cash crops like tea & coffee, horticultural products like flowers and fruits to European countries. But I will let you know that we also export small commodities to larger eastern African countries and other African, middle east countries too. Tjis include packaged and branded dairy and meat products, soaps, cooking oils, tooth pastes( just get my drift…small commodities..) When i travel to eastern African countries I always find Kenyan products occupying most of the shelves. Yes more should be done in processing this agricultural raw materials before exporting, but its misleading to think that we never export any processed goods.
About remittances, yes we have a sizable Kenyan in diaspora but that number is a drop in the ocean. How many Kenyan households depend on these remittances for their survival in proportion to the whole population? Id say very little. Some even depend on their folks back home.
About the stock exchange, first there was safaricom that small retail shareholders that wanted to make a quick buck. When then they say things where not going their way they started selling in panic, some even wanted to repay their little loans. Also there are foreign investors who slight changes in forex exchanges can mean profit to them. That’s why even now, the biggest proportion of trade at NSE involves safaricom. Also other institutional investors like old mutual which global and more linked to the global economy maybe assuming a wait and see attitude and not buying. These creates more supply of shares than demand leading to the deep in prices.
Otherwise, the fundamentals of the Kenyan economy are the same, though ours is a small economy, its a growing economy with big potential and will continue growing in the near future if the government implement its policies successfully. The only thing I’d fault the government is in doing enough to curb inflation. Apart from that I would encourage anyone thinking of investing in Kenya to do so. Especially Kenyans in the diaspora. Home will always be home. If the US economy collapsed and life became unbearable there, am sure most Kenyans in the US will consider coming back home. Why not invest back home? Nigerians do so with lots of pride yet theirs is a very corrupt society.
and Oh.. I forgot, if Kenyans in the diaspora don’t invest it will be their loss. If enterprising Somalis who are coming form European countries in droves to invest in Kenya and are succeeding, I don’t see why native Kenyans can’t do that. These Somalis have become wealthy. Just go to expensive coffee shops and malls and you can see that for yourself. An article from a local daily did a story on that and most of this Somalis came as far as Finland to start businesses here. If foreigners are investing, Kenyans instead of complaining (which am not saying they shouldn’t do, they have every right to criticize) they should also invest. Bring back those skills you have gained back there and build your motherland. Don’t wait for the perfect political situation etc or just rely on western media to make your judgment. Several Foreign banks are making debut in Kenya that should tell you something…..I say its time for Kenyans out there to wake up! Instead of seeing problems see it as an opportunity. If you came from a neighborhood with lots of garbage, instead of sneering and bragging how your place abroad is clean see it as an opportunity to start a garbage collection business or refuse recycling plant here. Come and do it here the way they its done out there and improve your country.
KE
You should have mentioned me too on that working stiff coment….Any way
We do exports mainly in two areas
crops….Flowers (tea & coffee are doing bad)…
Tourism~ This is our biggest ‘free earner’ since we need not invest anything!
Remitance was until you said our THIRD most important earner…I think the drop in this is what KEIO said (NO FDI from our diaspora) since most Kenyans are NOT sure of the future of this country especilly if we seeing Raila Vs Kalonzo stage being set which will Polorise the country and probably fataly split it (mark my words)
Tourism had suffered massively due to the same PEV
KUDOS though for keeping your head straight and using facts to argue instead of the ‘love for country sentimantlity’…….
ALSO KE the rich in Kenya had been bringing money back (Usually they do this near any ELECTIONS)…Now is the rverse flight….
NONI,
I really like your reasoning. It’s treu, there’ll never be any perfect political situation in kenya, and we should see the problems as opportunities.
The real wealth of Kenya lies in Agriculture, yet most people are looking down upon it. Tourism is superficial its not real wealth. I urge kenyans to take up agriculture and please don’t embrace GMO.
OJWANG
Could you please xplain what this GMO Debacle is all about ? I would think that GMO’s would result in more harvests at a cheaper cost thus increasing food production?
But there seems to be strong opposition about it, help us understand….
Diaspora funds impact is so so. Most of it goes into NSE or real estate. However note that KRA collects almost Ksh500bn from Kenyans annually. So Kenyans must be making and producing!
Far from disparaging agriculture, I’m thinking this might be a perfect opportunity to go into agriculture big time. Imagine you are a farmer owning 100+ acres of maize or potatoes with prices doubling every few yrs…
The GM issue is serious (in summary, it means that though you get higher harvest, you can’t re-use the seeds for example and 2ndly; a lot of the GM seeds are known to adversely impact the soil and other vegetation), but Kenyans prefer politics so lets keep it that way.
mainat
‘imagine you are a farmer owning 100 acres…’
right now, you’d be crying for rain. thanks to all the deforestation, rivers are now streams and streams are roads. 100 acres of maize or potatoes in such circumstances would be a nightmare.
noni
investing in kenya will make you money, eventually. it takes some temerity to succeed, especially for those accustomed to the ‘ease’ of the west.
I remember a friend of mine once told me how he got a thorough beating from his father because of having a habit of ducking to eat chapo and kuku at the neighbours home instead of staying at home and eating githeri.
Using that analogy I think most Kenya grew up socialised to despise their country. At first it was work hard in school so that eventually you can get a good job. When the economy took a nose dive during moi regime, it was work hard in school then after high school try all you can and go “majuu” and your future will be bright. Get a job out there and you will be sorted for life. We know that majority who went ended up working for those nursing home earning minimum wage. When they send little money they can back home it has an advantage of converting to a weaker currency so it becomes alot.
Anyway, its time we as Kenyans changed and look for opportunities in our own environment. There are many business opportunities just waiting for someone to take them. Most of those big corporates in the US that are falling right now started small. Big manufacturing plants started as cottage industries. Its time Kenyans embraced entrepreneurship spirit. Starting small companies employing 10 to 20 people can solve the problem of unemployment instead of waiting for big multinationals to set base here.
As for the Kenyans abroad there is also much they can do. For example there is group of Kenyans who have formed an investment group. They want to buy land and start building houses (2 to 3 bedroom houses)for low to mid income earners. I think that is a brilliant idea. One, there is a shortage of housing in Kenyan urban areas so they will benefit the society here. Two, they will profit a lot because the demand is high for such houses. There are also many other ideas that Kenyans in the diaspora can do to benefit themselves and the country. This is not “sentimentality” but practical ways to benefit yourself and your country. I’d echo the words of JF Kennedy. He said “Don’t ask what your country can do for you, ask what you can do for your country”. It is this patriotism and love for country that led to making great nations such as the good old USA(not the one currently), Japan, China etc.
We need more patriotic and enterprising Kenyans I’d say.
Noni
What is better?
Staying in Kenya and earning zero
or
Working in a nursing home in the US/UK
I would choose working in a nursing a home any day.
I remember in the 70s there was this quarrel between Njonjo and Nyerere. Nyerere said that Kenya is a man eat man society. Njonjo replied that Tanzania is a man eat nothing society.
Those Kenyans working in nursing homes have been able to educate their brothers and sisters back home, build nice houses, invest in the stock market and real estate thereby employing more Kenyans. Do not look down on them. And their children are now slowly climbing the migrant ladder. I know someone here in the UK who is a security guard, but his daughter has just completed a Pharmacy course and now the family is staring real money in the face.
Some areas of Kiambu are run solely by a mini diaspora boom – am talking about Kikuyu, Limuru, Gachie, Rwaka, Banana, Githunguri etc.
@ Kei O,
Am not looking down on them at all. Yes it makes sense if the only employment you manage to get is abroad doing those blue collar jobs then go for it.
All am saying is lets change our mentality. The attitude that says once has a bigger chance to succeed in a western country that at home is wrong. Many have fallen into these trap left their professional jobs followed their fantasies to the land of milk and honey and now are regretting. Lets bring up a generation that have self confidence in themselves and their country, people who have great vision and courage to do what no once else has done, even in their family tree. Let people take risks and start enterprises to benefit themselves and their community instead of looking at the easiest way out inform of a green card.
I Agree that that during some of MOI’s time, the country just got F#$D!
I think it happened from 1991 onwards. Kenya just became a hard place to live and as KeiO Put it, one would rather earn something in a nursing home than nothing at home.
aLOT OF THE EMIGRATION FROM KENYA OCcured during the 90’s when the country was basically going nowhere.
Now there’s reversal in the direction and people see hope. People can now venture back home to see what it’s like , test the waters before committing substantial amounts of capital back there.
Most kenyans are 1st generation imigrants and as such, they have to pave the way for themselves and their kids, it’s never easy when ur the first one.
mzeiya:
?WorkingStiff=KE
Hehe:). I am so far from being KE!!! I even think KE and many would be surprised if we actually met in real life!!!
KE, I applaud you on starting this thread, you struck a nerve. It is about to rain and ruin some crops, you went out and told many and they are angry.
Burying our heads in the sand is what got us to the January chaos, Mutahi even wrote what would happen and it was ignored.
Smart people in Kenya, would realize that the economy is going to be affected, and take preventative action. I know I am telling my relatives the same thing.
During the Kenya boom, I did notice that some people were refinancing their mortgages(at lower interest rates than in Kenya, e.g. 6-8 percent) here in the diaspora, and using the money to invest in Kenya, with expectation of a return.
KE, keep up the probing, we need an economy that can compete on the world stage, to support our habit of buying things like fuel, medicine, etc.
Noni, one of the reasons many in the Diaspora seem to be always “criticizing” is we have realized that is why some of these countries have become great. They have set higher standards for themselves, and we are just doing the same. One only “criticizes” when there is hope of improvement. Don’t worry, it is a matter of time, we are coming back… with our “criticizing”. Some of us are even “worse” in person!!!
Indians started migrating to the West in the 70’s and 80’s, and it is just now that they and their children are going back. We are next.
Noni
There is a misconception in Kenya that the only jobs migrants manage to get abroad is working in a nursing home. I do not know where this rumour started.
Yes, there are Kenyans working in nursing homes but there are also many other Kenyans working in other jobs. There are lawyers, doctors, nurses, engineers, lecturers, drivers, accountants, PAs etc.
There is also a huge number of self-employed Kenyans, especially in the UK. They are actually employers. Then there is another group of Kenyans that work in the UK/US to raise capital for their business ventures in Kenya and beyond.
I do get your point about people starting businesses in Kenya. It is very important to do so. However, it is also true that there are some challenges in doing so not least the poor state of infrastructure. This is where the government should step in and make conditions that favour businesses. This is what India, Brazil, China and others are doing.
I know good things are being done by the Kibaki government but we cannot bury our heads in the sand and say that everything is fine. We have to be critical so as to improve standards.
sorry all to be going completely off topic!!! And maybe this does have some relevance since we are talking about the real or imaginary purchasing power of the mwananchi (are there real fundamentals there or is it diaspora supported?)
Anyway, I wanted to shamelessly plug a man I admire immensely, Chinnery Hesse founder of SOFTTRIBE in Ghana and now tapping in to this
http://www.inc.com/magazine/20.....ghana.html
To tie this back to this thread, my personal opinion remains that most Africans will remain insulated from the global credit crisis assuming that the GLOBAL financial markets do not collapse COMPLETELY. I think the bottom of the pyramid market model will continue to thrive and flourish and hence drive robust economic growth and I believe the confluence of advancements in mobile technology and the ease of accessibility for wananchi (i.e. easy to afford) will unearth economic opportunities that people cannot even begin to imagine.
Sijui:
Thanks for the article link. I’ll try and read it later.
Two questions for you:
1) What tremendous economic opportunities do you see on the horizon for Africa? Give us some examples.
2) Why do you think Africa will see such unimaginable economic gains when we are still falling far behind in the instruments of innovation that are driving this global economy. What instruments are these? the advancements in science and technology. This is still absent in Africa.
SIJUI,
Just read the article and loved it!
Thanks KE,
Two very good questions and I’d try to keep this short and sweet.
1) economic opportunity locked in the informal sector both in terms of the jua kali/mama mboga purchasing power and the goods/services THEY produce for the mass market. Simply put I think there is a basket of financial and technology services that appeal to the basic necessity and disposable incomes of this group. Examples micro-banking, micro-insurance and micro-investment……giving them loans for consumption, homes or business, giving them health, life and property insurance and finally giving them access to the stock exchange/unit trusts/corporate & public bonds. The companies that successfully satisfy the needs of this segment, will become very, very rich e.g. Equity Bank and frankly I think we have not begun to scratch the surface.
The goods/services produced by entrepreneurs in this sector are low value, low technology and low quality but again I think that is changing. Like you say this is the weakest link of our economy but where we differ is the belief in how quickly the value chain can be improved. And I think the influx of CHEAP CHINESE imports is a boon, especially as they continue to set up third party manufacturing hubs here. The Chinese and Indians learnt from imitating the flood of western imports that came in to their economies with the first wave of globalization. I believe we will do the same and produce only for the local and regional market where there is strong and reliable demand. Africans creating a consumption base for Africans.
2) The instruments of innovation THAT ARE APPLICABLE to Africa are very different from those emerging in the West, and again here is where I believe our focuses are different. A few immediate examples are MPESA, EZSWITCH, micro-finance…….products and services tailored to the African millieu not Western creations imported to attempt to fit a square peg in a round hole. I agree that there are universal advancements in science and technology that Africa will have to be a part of to survive, but I don’t think the consumption patterns of the West as a benchmark will be either meaningful or relevant here especially when you have a completely different social and cultural value system. I think those advancements in science and technology e.g. wireless technology, that are relevant have taken root and are gaining ground at a time when our economies are become more open and efficient and our political space is becoming less repressive…….meaning entrepreneurs who sell products and services that the wananchi want are becoming more diverse and dynamic and richer
P.S. Another advancement that I forgot to mention, that is slowly spreading in tentacles is bio-technology especially in the areas of food science and bio-fuels. I will try and post a few good articles but a good barometer is the store shelves in any Uchumi or Nakumatt. The quality of locally GM processed goods has improved light years and the diversity is amazing. Things that you would expect in high end specialty food stores are available from local producers and manufacturers. And you have bio-technology not just from the GM side but organic as well, and this is an area where we can actually export finished products to the more advanced Western and Asian markets because of quality and controls.
Sijui:
I just finished reading the article. It’s very good and it pointed out what is perhaps one the biggest opportunities for aspiring African entrepreneurs. According to the article:
“Nearly everyone who follows African business agrees that coming up with a way to exchange money effectively is the next big thing in Africa”.
Now, to the other issues you raised:
History has shown us that to advance an economy, you can’t just sell locally or even regionally and the best examples of this are the world’s two fastest growing economies in China and India. These countries did it by selling products to people in the ADVANCED economies. Doesn’t Africa have to do the same, especially because the purchasing power is still not there?
On China:
I don’t see how China’s imports will be a boon to Kenya or to any other African country. In fact, many have argued that they are destroying home grown African businesses, especially things like Jua kali.
Also, Chinese products have been getting a lot of negative press lately with all their toxins and bad chemicals. I mean, people are actually dying! when I think of products from China, two words come to mind: toxic and shit. Africans should not copy the Chinese. They should copy the Europeans who are known for producing top quality, safe products. The key for small countries like Kenya (I think) – will be to focus on QUALITY, not QUANTITY.
What I see as kenyans best export is her cheap, well educated, good English speakers. I can’t tell you how much Americans hate dealing with these Indian customer service agents. If Kenyan companies could attract these American firms, they’d make a killing and with the U.S. economy heading south, outsourcing is going to continue to grow as firms seek to cut costs.
All this will remain mere talk and balderdash so long as there is no reform of the international trading system.
Do you think Europeans will allow you to sell them processed products? I dont think so – because this is exactly what they do.
I have said before and I will say it again that Africans must integrate their economies and first of all create their own market before dreaming of conquering protected markets in Europe, America and Asia.
Simple Questions:
- Why does food rot in Nyandarua when children are starving in Wajir?
- Why does Congo DRC depend on food aid when the whole country is evergreen?
Sort out yourselves first before you think of sorting out your neighbours yard.
KE, my response mirrors Kei O you cannot sell to the Western markets when those very western markets survive because of the consumption and production of their middle class. Or to put it another way, Chinese and Indians started their manufacturing base by allowing foreign, western owned outfits to set up in their countries and use their cheap resources to produce locally and then export, NOTE their singular success was restricting foreign owned companies from selling locally UNTIL there was a sufficient locally owned manufacturing base that could compete with the western manufacturers, And even then there remain significant protectionist policies (the government either outright owns many of these local firms or they are heavily subsidized.)
So no, the Chinese started off by imitating western production methods and restricting access to their domestic market until the Chinese were sufficiently confident that they could compete in quality. Secondly, as the current financial crises has shown, China announced this year that it is shifting the focus of its industrial production towards expanding and deepening the domestic market because of two political realities:
1) the backlash in the U.S. and Europe against Chinese manufacturing displacing American and European. The free marketers talked a good game but with unemployment rising across the board in the West, the tolerance for free trade is waning, and ‘locally owned and manufactured’ is becoming a powerful political rallying cry.
2) ALL the western industrialed countries became rich because of consumption not production. A first world economy is that not because of the quality and diversity of production, but because of the purchasing power of its citizens who either own the means of production and thus earn the income to consume from their profits, OR are employed by the people who own the means of production and thus consume by way of their salaries. America’s economy is 70% fuelled by consumption not the reverse.
3) The Chinese and Indians know full well that once the purchasing power in the West declines, their conveyor belt as production economies will come to a halt. That is why both countries are emphasizing domestic consumption in China and India because of the gravy train of producing for export consumption predominantly is unsustainable, especially as those markets decrease their purchasing power and become politically hostile.
Which brings me to where Africa comes in. As I said, we should learn from current developments that production for export consumption is not viable over the long term. For one, the Western and Asian middle class will demand and expect jobs delivered by their own domestic production and consumption, and two even if there was an opening for us, we cannot compete at their level yet. That is why we should be students of the Chinese way. Let foreign manufacturers come in and produce for export, limit their direct access to your local economy (note I did not say prevent, I said limit) until such a time that your local manufacturers can imitate competently their production methods and then finally produce for the local economy based on consumption demand so that you support and sustain the growth of the middle class. And then as your economy becomes more sophisticated you have the luxury of robust domestic consumption and the ability to trade and export in the global economy.
And I am not saying that this precludes us from exporting now since it is obvious that the West, and Asia and Latin America have needs that cannot be fulfilled in their domestic economies that we can satisfy now. What I am saying is that this is the natural progression for a Third World economy that has to compete and survive in a global economy.
KE, KEIO , SIJUI,
After reading the article on the ghana guy, I’ve come to realize that indeed there’s a large section of the informal economy that is not accounted for in official reports and stats.
I recall when safaricom set up shop in kenya, the 1st day, Michael Joseph was literally overwhelemd by the demand that they’d understimated. he said the models they’d done were so off.
At times that’s why I see that one has to physically go to those countries to see what’s really happening on the ground, coz most official stats leave out the jua kali guy, the guy peddling stuff on the street, the hawker etc.
KEI O I agree about the creating a market for african goods first, and I think most african leaders have seen this point. actually during the recently launched COMESA trading or was it xpanded ? whichever, most leaders cited that they decided to increase trade between each other in order to secure better terms when negotiating with the west during those WTO Talks.