Kenya records 18.9% remittance growth in February despite COVID-19

Kenya's economy has demonstrated resilience amidst the challenges posed by the COVID-19 pandemic, with remittances from Kenyans working overseas experiencing a significant surge. According to the Central Bank of Kenya, in February 2021, Kenyans abroad sent home $260.2 million, marking an 18.9% increase compared to the previous year. This increase in remittances is a positive indicator for the Kenyan economy, despite the ongoing global health crisis. However, the investment sector has not been immune to the economic impacts of the pandemic. Investment firm Centum recently issued a profit warning, attributing it to lower disposal of investments and the effects of COVID-19 on its private equity portfolio business. In a recent interview with CNBC Africa, Justin Mwangi, Investment Analyst at Cytonn, provided insights into the current state of the money markets in Kenya. Mwangi highlighted the liquidity improvements in the Kenyan money market, noting a slight tightening compared to historical trends but an overall uptick in yields on government papers. Investor interest has been on the rise, as individuals seek to take advantage of the favorable rates amidst the economic challenges brought about by the pandemic. The decrease in disposable incomes for many individuals has impacted market dynamics, leading to tighter conditions. Listed companies in Kenya have also been affected, with several issuing profit warnings, including Centum. Mwangi attributed Centum's challenges to the subdued real estate market, where the company has a significant investment. With the shift to remote work and reduced demand for office spaces and housing units, the real estate sector has faced challenges, affecting companies like Centum. Additionally, investments in the private equity sector, including companies like CDL and Nasuvea, have been directly impacted by the pandemic. The increase in non-performing loans and provisions in the banking sector has also contributed to declining profits for financial institutions. Standard Chartered and Stanbic have seen significant drops in their net profits, largely due to provisions made for potential loan losses. However, Mwangi expressed optimism for the sector, citing market regulations that ensure banks meet statutory requirements. As economic activities gradually resume post-pandemic, provisions are expected to decrease, leading to improved profitability. Despite the challenges faced by various sectors, remittances from Kenyans abroad have been a beacon of hope for the economy. The diaspora remittances have seen consistent growth, with an 18.9% increase in February 2021 compared to the previous year. Kenyans living outside the country have shown a willingness to support their families and relatives back home during these trying times. As the country grapples with high debt levels, proposed amendments to the Public Finance Management Bill 2019 seek to set limits on government borrowing. The approval of such measures could impact the money markets in Kenya, with potential shifts towards more internal borrowing if external borrowing limits are imposed. The slow revenue collection in the country may lead to upward pressure on the yield curve if the government resorts to domestic borrowing. The future economic landscape of Kenya will depend on how effectively loans are utilized to spur growth and support critical sectors affected by the pandemic.