Discussions on the contribution of tourism sector earnings vis-Ã -vis diaspora remittances to Kenya's economy continue to be topical. In the last fiscal year, the tourism sector grossed $4.38 billion, with 40% ($1.752 billion) remaining in Kenya. However, 60% of tourism earnings leave Kenya as many tourism products are foreign-owned. Diaspora remittances, on the other hand, exceeded tourism earnings retained in Kenya by $1.35 billion. The tourism sector is a major contributor to Kenya's GDP and provides low-income employment for thousands of Kenyans. The sector is vulnerable to external economic shocks, while diaspora remittances have provided stability during crises such as the COVID-19 pandemic [b2f2dfa9] [0c9ed5f2].
Kenya's government plans to implement incentives to increase remittances from Kenyans in the diaspora to at least Sh1 trillion per year and boost the country's foreign exchange reserves. The State Department for Diaspora Affairs (SDDA) is seeking a consultant to conduct a baseline survey and develop a framework and tactical plan for enhancing remittances [0c9ed5f2].
Remittances from Kenyans living and working abroad have averaged $3.56 billion (Sh568.67 billion) in the last five years, growing by four percent last year to hit $4.19 billion (Sh642.44 billion). The annual remittances will need to grow by about 36 percent in the next four years to reach the targeted Sh1 trillion per year by 2027. The US, which accounts for nearly 60 percent of remittances, posted a marginal 0.26 percent rise to $2.34 billion (Sh373.2 billion) last year. The growth in diaspora inflows slowed down last year due to flattening or reduced remittances from Kenyans in America, who have been affected by high inflation and reduced disposable income [0c9ed5f2].
However, Kenyans abroad sent home $385.9 million (Sh52.2 billion) in February, a decrease of 6.4% compared to January but a 24.8% increase year-on-year. The United States is the primary source of remittances, contributing 54% of the total inflows. The recent strengthening of the Kenyan shilling against the US dollar may be linked to the decline in February. A weaker shilling usually leads to a more favorable exchange rate and higher remittance amounts [e2a5951a].
Australia, Canada, and the United Arab Emirates have emerged as Kenya’s fastest-growing source markets of remittance dollars this year, with inflows from Australia increasing by 99 percent to $64.13 million, inflows from Canada increasing by 90 percent to $50.32 million, and inflows from the UAE rising by 59 percent to $48.1 million. Germany has also seen a 46 percent increase in its remittance flows to $89.3 million. While remittances from these countries are still below those from the US, Saudi Arabia, and the UK, their faster growth indicates that Kenyans are seeking labor opportunities from a wider range of countries. Overall diaspora remittances in the first five months of this year reached $2 billion, a 19 percent increase from the previous year. The US remains the main source of remittances, but remittances are now coming from many countries, making them more resilient to economic slowdowns. The main remittance markets of the US, Saudi Arabia, and the UK saw their volumes grow by 9.4 percent, 13 percent, and 18 percent respectively. The growth of remittances from Saudi Arabia has been driven by domestic labor immigration, while the UAE has seen growth due to foreign investments and new businesses. Skilled Kenyan labor is finding opportunities in Canada and Australian tertiary institutions are attracting Kenyan students, leading to employment and remittances from the country [0c9ed5f2] [fdf05f7f].
In addition to boosting diaspora remittances, Kenya is also taking steps to attract investment. The Investment Promotion and Facilitation Bill 2023 proposes a minimum requirement of KSh 5 million for individuals seeking investment certificates. Foreign investors will need to meet a minimum investment requirement of $500,000, approximately KSh 80 million. Sally Mahihu, the chairperson of the Kenya Investment Corporation, praised the bill's potential to promote investment in Kenya during a recent public participation exercise. The bill aims to bolster the investment landscape in Kenya and attract both local and foreign investors. In addition to the investment capital, investors must show how their businesses will contribute to employment creation for Kenyans and provide evidence of acquiring new skills or technology for Kenyan workers. The bill also sets the minimum investment requirement for foreign investors at $500,000 or its equivalent in any currency. Kenya was ranked number one in Africa for start-up investments, securing KSh 126 million in funding. Kenya's portion of funding in Eastern Africa increased from 86% in 2022 to 91% in 2023 [59344009] [0c9ed5f2].
The recent appreciation of the Kenyan shilling is attributed to economic stability, low inflation rates, responsible fiscal management, and increased investor confidence. The Central Bank of Kenya has strengthened the shilling's value by increasing foreign exchange reserves and intervening in the foreign exchange market when necessary [e2a5951a]. Despite the decline in remittances and a dip in foreign exchange reserves, Kenya's overall import cover remains adequate at 3.7 months. The Central Bank of Kenya maintains a positive outlook and assures the public that reserve levels meet the minimum requirement [e2a5951a].
Revenue from tourism in Kenya jumped nearly a third in 2023 over the previous year, reaching 352.5 billion shillings (nearly $2.7 billion), beating pre-pandemic numbers. However, per capita spending in dollar terms by the 1.95 million visitors fell due to the sustained depreciation of the Kenyan shilling against major currencies. Americans accounted for the largest number of arrivals in 2023 at 265,310, followed by Ugandans, Tanzanians, and visitors from the United Kingdom. The ministry hopes to welcome 2.4 million tourists this year. In January, Kenya's immigration services introduced a simplified 'visa-free' entry system to encourage more visitors [b0a1efc2].