Remittances and Diaspora

Kenyans living in the diaspora have become an integral part of Kenya’s economy. Their remittances back home have not only caught the attention of the Central Bank of Kenya (CBK) but also the eye of the government with discussions underway on how to capitalize on them for the betterment of Kenya’s economy.

The latest data from the Central Bank of Kenya (CBK) showed that diaspora remittances increased to 48.1 billion shillings in March 2023. This represented a 15.5 percent growth from 41.7 billion shillings reported in the previous month.

The cumulative inflows for the 12 months to March 2023 totaled $4,020 million (541.7 billion shillings) compared to $3,912 million (527.1 billion shillings) during the same period in 2022 according to CBK’s bulletin. The latest data is in line with the CBK’s Remittance Survey done towards the end of 2022 which showed that Kenya was earning more foreign exchange from diaspora remittances than each of its major exports – coffee, tea, and horticulture.

Kenya’s diaspora remittances rose by 8.34 percent to $4.027 billion in 2022, closing in on exports, which brought in $5.77 billion worth of foreign currency in the same period. Compared with 2021, Kenya’s total exports rose 7.5 percent, a slower growth rate than the diaspora remittances, which are projected to keep growing as the world’s economy continues to recover.

For March, remittances from the US accounted for 58 percent of the total inflows, as the country maintained its position as the top source of remittances to Kenya.

CBK noted that the remittance inflows continue to support the current account and the foreign exchange market, maintaining the country’s foreign reserves at adequate at $6,376 million (859.2 billion shillings) as of April 13, which was 3.56 months of import cover.

Despite the role that diaspora remittances play in the Kenyan economy, concerns continue beings raised with the government of Kenya being blamed for having weak policies and wanting to in place measures that might discourage Kenyans in the diaspora from sending cash back home or finding other means that might not be captured by the mainstream like the use of Cryptocurrency.

The issue of double taxation has also become a thorny issue, especially after the amendment of the country’s tax laws that govern the taxation of individuals that are traditionally based on residency status, including a definition of what “permanent residence” means. Concerns are that the taxman might use the leeway within the definition to tax those in the diaspora who have over the years been confused about defining their permanent tax residence.

The recent announcement by President William Ruto that the government was planning to deduct a certain amount from Kenyans in the diaspora on their remittances so that it can be remitted to the Housing Fund might not go down well with the majority of Kenyans abroad.

There is also an ongoing discussion as to how the government can benefit from the diaspora remittances through taxation. Given that most of this cash is invested back into the country, and also given the slightly higher charges that the sender encounters while sending back the cash, the proposal might pose a challenge to them.