Commentary on Remittances in 2009   Mr. Charles Gitari Koori, Director Research Department

The Central Bank of Kenya conducts a survey on remittances data every month based on information collected from formal channels that include commercial banks and other permitted international remittances service providers in Kenya.

Table 1 summarizes the data on remittances since the survey was initiated in 2004. For 2009 total remittances stood at US$ 609million (equivalent to Kshs 47.1 billion). This was slightly lower than 2008 remittances of US$ 611million (but higher in shilling terms equivalent to Kshs 42.3 billion due to exchange rate movements). Remittances in December 2009 rose by 40% to US$ 56m (Kshs. 4.2 billion) from US$ 40m (Kshs 3.1 billion) in December 2008. Similarly, remittances increased by 16.8 percent in the month of December, 2009 from US$ 48 million in November 2009.

Table 1: Monthly Remittances Inflow 2004 to 2009 in US$ '000

Analysis of this data shows that 2009 was a much better year for remittances than 2008 since there were no major events like the Safaricom IPO in 2008 and the onset of the global financial crisis. But Kenyan emigrants enhanced remittances inflow in 2009 mostly for consumption smoothing due to adverse effects of domestic shocks including the prolonged drought. As a result of the persistent drought many farming communities suffered extensive crop failure while livestock died in semi arid and arid areas, thereby adversely affecting the livelihood and subsistence of both farmers and pastoralists.

Comparing 2009 and 2008 remittances fell by US$ 37.7m in the first half of 2009 compared to 2008. In local currency however, this difference was marginal and is completely dissolved by exchange rate changes to show a revaluation inflow of about Kshs 1.6 million over the period due to the depreciation of the Kenya shilling from an average of Kshs 65.3 per US dollar in the first half of 2008 to an average of Kshs 79.0 per US dollar in the a similar period in 2009. During the second half of 2009, Kenyans in the diaspora sent home US$ 35.6m more than in the second half of 2008 which was equivalent to Kshs 3.4 billion. In particular, emigrants sent home a total of US$ 317 m (Kshs 24 billion) in the second half of 2009 compared to 282m (Kshs 20 billion) in a similar period in 2008 and US$ 292m (Kshs 23 billion) during the first half of 2009.

Remittances inflows have normalized around the mean of US $50,000 in 2009 (Chart 1). But this does not preclude peaks (associated with positive events at home or abroad) or troughs associated with normal business cycles.

The return of global economic growth in the second half of 2009 has signalled a rebound in confidence both in the financial markets and production of goods and services. The rebound in economic activity, which is stronger in developing economies and emerging markets, will sustain the pick-up of remittances inflow in 2010. As seen from available data, remittances from Kenya's main source markets, stabilised close to US 160 million in the 3rd and 4th Quarters of 2009 (Chart 2 and Table 1).

Chart 2 shows that Kenya's traditional inwards remittances source markets shares increased from 51 percent and 27 percent for North America and Europe, respectively in November, 2009 to 52 percent and 30 percent in December, 2009. In general, the remittances data could signal the fact that economic activities in the source markets are recovering and as such they will be significant sources of future remittances. Overall, these data signals the resilience. Most of the Diaspora remittances are used to support investment especially in real estate - construction and investment in equities in the stock market. Besides investments, inward remittances are also used for consumption smoothing as the Diaspora cushion their relatives from the effects of different domestic shocks.