An African Development Bank and the World Bank  report dubbed “Leveraging Migration for Africa” says that cash inflows from people living in the Diaspora to their countries of origin reduce poverty and improve living conditions in Africa.  The report indicates that remittances lead to increased investments in health, education, and housing in Africa while Diasporas have provided capital, trade, knowledge, and technology transfers.

How is it Used?

Stanbic Investment Management Services released a report indicating that diaspora remittances have contributed more than $3 billion (KES 261 Billion) to the Kenyan economy in the last 5 years, even at a time when European and US economies have been on a slowdown.

The number of Kenyans living abroad Kenya's diaspora remittances has been on a steady increase in the last five years. As at September 2012, the number of Kenyans living in the diaspora was estimated at 3 Million. 52% of the remittances are targeted for households mainly healthcare and education, while the rest goes to Investments such as land purchases, building a home, and starting a business are the highest uses of remittances sent home by Kenyan Diasporas. A paltry 4% goes to savings, 8% goes to the local real estate market,while a third of the remittances go to supporting small local businesses.

Lost Along The Way

All this money and no discrepancies? Hardly possible. Lack of structured plans to channel diaspora inflows to vital areas of the economy has been is the biggest source of inefficiency. An expert panel discussing ways to improve the impact of remittances in Africa prior to the 5th Joint Annual Meetings of the Africa Union Ministers of Economy, Finance and Planning and Development, largely agreed that the $40 billion remitted to Africa annually went to the “consumer economy” mostly to buy food and therefore, not playing any key part in boosting other areas of the economy. Therefore the next time your cousin in Iraq sends you money, think of baking a bigger cake ‘kujenga taifa’.

Africa Business News ABN’s Lerato Mbele interviewed Anthony Mwithiga, Chief Investment Officer at Stanbic Investments. Mr. Muthiga says that remittances to East African countries and the rest of the continent are yet to make an impact on economic development despite rising to billions of dollars over the last five years.

Given that remmittance money is mainly consumed and not invested, Mr. Mwithiga suggests that the money should be tapped into local government through issuance of treasury bonds targeted mainly to this remittances, since the challenge is lack of set out investment products to harness this inflows.