Related to: Remittances, an Infographic.
The Central Bank of Kenya has reported that remittances to Kenya for February 2012 amounted to about KES 8.6 billion. This is 71.12% higher than the amount received in February 2011 and 15.84% higher than what was received in January this year.
According to the CBK website, this significant increase in remittances can be attributed to the following:
- Improvement in data collection techniques and proper classification of remittances by some commercial banks.
- Aggressive outreach to the Diaspora to invest in Government’s Savings Development and Infrastructure bonds through these formal channels.
- Increased competition among money transfer service providers that reduced transaction charges.
All this is in fact accurate. However, it is worth considering the attractiveness of Kenya as an investment destination. If one considers capital inflows in general and not just remittances by Kenyans in the diaspora one will observe that foreign investment in Kenyan securities has been on the increase over the last 6 months.
Upon comparison, the rate of return on Kenyan investments is higher than in neighbouring countries:
| Country | Kenya | Uganda | Tanzania | South Africa | Nigeria | |
| Rates | Inflation Rate (%) | 15.61 | 21.20 | 19.40 | 6.00 | 11.90 |
| T/Bills (91 days) (%) | 15.93 | 18.09 | 15.30 | 6.59 | 14.76 | |
| Real Return (%) |
0.32 | -3.11 | -4.10 | 0.59 | 2.86 | |
| Year to date return of main stock exchange (%) | 15.50 | N/A | N/A | 6.18 | 6.59 |
Real return is the return on the Treasury Bills adjusted for inflation; it is the actual return an investor will get upon investing. It is clear that Kenya is the only country in the East Africa region where the real return is positive and therefore foreign investors would rather direct their money to Kenya. When we consider the stock exchanges of African countries we observe that the Nairobi Securities Exchange has the highest return of all 5 stock exchanges under consideration.
Obviously we ought to consider other investment opportunities other than government securities, however due to the complexity of getting the equivalent interest rate on Real Estate, the growth of the stock exchanges of the countries under scrutiny and other investments we’ll use the interest rate on Treasury Bills to conclude that Kenya is the most attractive investment destination in East Africa and this has contributed to the observed increase in capital inflows.