Each of the Kenyans living and working abroad sent home about Sh100,000 last year, raising remittances by almost 40 per cent.
Kenya’s diaspora population, estimated at three million, remitted cumulative inflows of $2.697 billion (Sh274.2 billion) in the 12 months to December last year, up from $1.947 billion (Sh197.9 billion) in the same period in 2017, reflecting a 39 per cent growth.
According to the Central Bank of Kenya (CBK) statistical bulleting released on Friday, North America accounted for 45 per cent of the cash sent home followed by Europe (32 per cent) while the rest of the world accounted for 23 per cent of total remittances.
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“Remittance inflows improved to $244 million (Sh24 billion) in December 2018, which was 20 per cent higher than in December 2017,” said the regulator. Kenyans living abroad are an important source of dollars in the economy which are important in maintaining the stability of the local currency and driving up investments.
In fact, diaspora cash has become Kenya’s top foreign exchange earner, almost catching up with total exports, which stand at $4.9 billion (Sh494.9 billion) and more than tea ($1 billion - Sh101 billion), cut flowers ($674 million - Sh68 billion) and coffee ($219 million - Sh22 billion).
CBK relies on formal channels, mainly banks, although there are many informal channels to send money home, including cash, mobile money, barter and hawalas, where money is paid to an agent who then instructs an associate in the relevant country or area to pay the final recipient.
It is estimated that for every dollar recorded in the formal channels, there is an equal non-formal remittance, which would put money from abroad significantly higher.
Whether last year’s momentum of formal remittances will be sustained will depend on how the spike is explained.
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Analysts say the unusual spike in dollar inflows could have been occasioned by the tax amnesty announced by Finance Cabinet Secretary Henry Rotich on money stashed abroad.
In just three months last year, wealthy Indian families brought back more than Sh5.9 billion from banks in India’s Gujarat state under the extended tax amnesty.
According to the Times of India, quarterly data compiled by State Level Bankers Committee in Gujarat showed that billions of shillings were withdrawn between April and June.
“Bank officials and tax experts believe that a staggering Rs 1,000 crore (Sh13.9 billion) in non-resident Gujarati deposits have been withdrawn from Kutch banks since December 2017,” reported the newspaper.
Majority of the withdrawals have been recorded in Bhuj and Mandvi talukas native to Gujaratis who have settled in Africa.
“They are meant to avoid penalty or tax on their income stashed outside Kenya,” said the newspaper.
Despite this spike, CBK has maintained that the dollar inflows are not linked to the tax holiday offered by CS Rotich.
Governor Patrick Njoroge dismissed speculation that the exponential growth in remittances was as a result of the blanket tax amnesty that absolved even corrupt proceeds to encourage repatriation. “The issue that I do not agree with is that tax amnesty has been dramatic. We have not seen that level of inflows from the tax amnesty.”
In 2016, the Tax Procedures Act was amended to provide a tax amnesty on income declared for the year 2016 by a person who earned taxable income outside Kenya.