Cash transfers and remittances from the Diaspora have been rising steadily, recently surpassing Sh200 billion per year. At this rate, Kenya will earn over one trillion shillings in the next five years, thereby significantly raising its gross domestic product (GDP).
GDP is one of the most important measures of how a country’s economy is progressing, and has a bearing on quality of live of its citizens. A fast growing GDP creates more jobs, which positively impact on every aspect of the economy. Indeed, one of the goals of Kenya Vision 2030 is to raise growth by 10 per cent every year, even though this is yet to be achieved. However, if the increasing Diaspora remittances are channeled towards growing the GDP, then the 10 per cent can be reached.
To do this, Kenya needs to learn from better economies. Many countries with higher than 10 per cent GDP growth achieved the feat by applying two approaches: production, and money strategies. The production approach grows GDP when entrepreneurs and government invest in the production of new goods and services. It centres on the human resource as people become producers of the goods that they then consume as individuals, families and communities. The increasing Diaspora remittances can facilitate production of houses. For all Kenyans to be properly housed, we need to build houses as fast as population growth. Since Kenya’s population is projected to grow by about six million persons in the next five years, we need to build one million new homes within the same period. Proper use of Diaspora remittances can also create thousands of new small and medium-sized enterprises, if some of the remittances are used as starting capital. Implementing the money approach also grows GDP based on the supply and use of cash to facilitate production. The money approach involves investment and loans from banks. The three main loans are personal loans or credit cards, mortgage loans to finance developed houses and business loans that facilitate production. Diaspora remittances have in the last 20 years played a role in the growth of the money sector. Kenya’s financial sector was at Sh1 trillion deposit and Sh721 billion shillings loan advances in 2009, as per Central Bank of Kenya and World Bank report of 2010. By 2016, the financial sector had grown to about Sh3 trillion bank deposits and about Sh2.5 trillion in loan advances. Diaspora remittances contributed about Sh800 billion to this expansion. The projected Diaspora remittances of Sh1 trillion between 2018 and 2022 will also boost capital deposits in Kenya.
At this rate, bank deposits in Kenya shall grow to Sh6 trillion by 2022, out of which about Sh5 trillion will be loan advances across the segments. Ultimately, remittances will grow Kenya’s GDP faster where both production and money approaches are rolled out in accordance with the Constitution to better the lives of the citizens. The projected Sh1 trillion Diaspora remittances projected between 2018 and 2022 should thus be used strategically to create sustainable systems of production and finance that will lead to increased production of goods and services to ensure a sustainable Kenya with a secure future.
SOURCE: THE STANDARD