Kenyan remittances reached US$101m in May, up by 47% on the year-earlier period and 4.6% higher than in April.
North America remains the major source of remittances, according to the Central Bank of Kenya (CBK); inflows increased by 9.4% from April 2012 to reach US$51.7m, accounting for 51.2% of the total. European flows rose by 5.1% month on month, to account for US$28.1m (27.9%). Against that, inflows from the rest of the world dipped slightly, from US$21.6m to US$21.1m. Seasonal factors may be at work in the month-on-month data, but the figures do seem to corroborate the dominance of North America as a source of inflows.
Remittances are a key source of foreign exchange for Kenya. Indeed, according to an October 2010 study by the CBK and World Bank that included transfers taking place outside the formal financial system, remittances became Kenya's main earner of foreign exchange in the second half of 2010, helped by renewed interest in the real estate sector, as well as the growth of business start-ups. The year-on-year increase is particularly welcome since there has been concern that flows would decline because of the continued weakness and job losses in European economies.
The CBK attributes the continued strength of remittances to increased competition among money-transfer services (including mobile-phone-based services), which has made it easier and cheaper to remit money; improved marketing of government savings and infrastructure bonds amongst the diaspora; and improved data-collection techniques, meaning that an increasing proportion of remittances are being correctly classified by commercial banks. This last factor suggests that flows may not necessarily be rising as strongly as the headline data might suggest, but rather that an increasing proportion of existing flows are being captured in official figures.
Impact on the forecast
We continue to forecast that growing invisible earnings, from tourism and the servicing of regional trade, as well as remittances, will help to underpin a decline in the current-account deficit. However, notwithstanding strong flows in the first half of 2012, we continue to believe that receipts from remittances (and, indeed, the other sources) will remain vulnerable to negative global developments.