For the first time in more than 15 years, Kenya has recorded a sharp fall in money sent home by citizens living and working abroad during the first half of the year, wiping out nearly Sh10 billion in foreign exchange earnings as global shocks weighed on key labour markets.
Figures released by the Central Bank of Kenya (CBK) show diaspora remittances declined by 3.03 percent to $2.442 billion (Sh315.75 billion) in the six months to June, down from $2.518 billion (Sh325.58 billion) recorded during the same period last year. The drop translated to a loss of $76.4 million, or about Sh10 billion, in inflows.
The latest performance marks the biggest January-to-June decline since 2009, when the effects of the 2008 global financial crisis caused remittances to Kenya to fall by 11.4 percent following widespread job losses in advanced economies.
The decline came despite a strong beginning to the year, with remittances rising by 3.4 percent to $1.274 billion (Sh164.73 billion) in the first quarter, supported by improved inflows in February and March.
That growth, however, was wiped out in the second quarter after remittances fell by 9.2 percent to $1.168 billion (Sh151.02 billion) between April and June, representing a loss of $118.2 million (Sh15.28 billion) compared to the same period last year.
CBK data further shows the slowdown became more severe with each passing month. Inflows dropped by 5.9 percent in April, 10.4 percent in May and 11.2 percent in June, making June the weakest month recorded this year.
The slowdown coincided with heightened conflict involving Israel and Iran, which affected economic activity across the Middle East, where many Kenyans are employed, especially in Gulf countries. The unrest disrupted supply chains, increased transport costs and pushed up inflation, reducing the amount migrant workers could send back home.
"The conflict in the Middle East has disrupted global supply chains and led to a sharp increase in prices and transportation costs, resulting in higher inflation and moderated global growth," the CBK's Monetary Policy Committee said after retaining the benchmark lending rate at 8.75 percent in June.
CBK Governor Kamau Thugge had earlier warned that the conflict would directly reduce remittances from Gulf countries, which account for about 10 percent of Kenya's diaspora inflows, while also slowing remittances from larger markets such as the United States because of weaker economic growth.
The World Bank also warned in June that up to $40 million (Sh5.2 billion) in monthly remittances to Kenya was at risk because of the conflict.
The weaker performance also came after the United States introduced a one percent excise tax on outbound money transfers from January 1, increasing the cost of sending money abroad. Analysts have warned the levy could push migrants to reduce formal remittances or use other transfer channels such as cryptocurrencies.
Although CBK has not yet published country-by-country data for May and June, the latest available figures show remittances from the United States fell by 8.4 percent to $813.6 million (Sh105.12 billion) in the first four months of the year from $888.4 million (Sh114.87 billion) during the same period last year.
The $74.8 million (Sh9.67 billion) decline from the United States was almost equal to Kenya's entire first-half reduction, showing the country's heavy reliance on its largest remittance source.
The United States also accounted for a smaller share of total remittances, dropping to 48.7 percent from 53.7 percent a year earlier. It is the first time in recent years that less than half of Kenya's recorded diaspora inflows have come from the United States.
Before the tax took effect, Kenya Diaspora Alliance global chairman Shem Ochuodho warned that higher transfer costs could encourage migrants to look for cheaper alternatives.
Saudi Arabia, another major source of remittances, also posted a sharp decline. Inflows from the kingdom fell by 24.8 percent to $88.7 million (Sh11.47 billion) in the first four months from $117.9 million (Sh15.24 billion) a year earlier after labour market reforms aimed at increasing employment of Saudi nationals and slower economic activity.
Despite weaker inflows from North America, where remittances declined by 11.6 percent to $1.278 billion (Sh165.2 billion), stronger growth from other regions helped soften the overall drop.
Remittances from Europe increased by 14.3 percent to $514.3 million (Sh66.5 billion), while transfers from the rest of the world rose by 4.4 percent to $649.5 million (Sh83.98 billion), partly cushioning the decline from Kenya's traditional remittance markets.