How to go slow on taxes,debts
|A 14-year analysis of remittances|
The data shows that by the end of June this year, remittances exceeded $1.3 billion. An analysis of the 14-year trend shows that mid-year figures are a pretty good indicator of the trend to the end of the year.
Academic research and commentaries by the financial experts indicate that remittances have reduced poverty, enhanced human capital since it helps recipient households to finance education, health care, housing, small businesses, and farming. Recipients tend to put more money into these sectors than those who do not receive.
Research also indicates that remittances are finding their way into investments in the Real estate and the capital market
Given that much of the remittance is driven more by Philanthropic goals, there are indications that Diaspora remittances are a huge financial source yet to be fully exploited. And this where, creative thinking, thinking outside the box, is required.
Granted, the government recognizes remittances as a potential source of developments funds. How to channel them to areas of greater impact to national development seems to be the problem.
The money remitted is not little. The $1.3 billion (Kshs130 billion) remitted in the half- year to June, for instance, forms a significant chunk of the US$7 billion in our forex reserves. It is the equivalent of 73 percent of the Kshs179 billion allocated to the transport Ministry this financial year to build roads. If remittances hit the anticipated $2.6 Billion by the end of the year, that would be 68 percent of the cost of the proposed six-lane Mombasa highway.
All this money stays in our economy given that it is used for the consumption of local goods be they cement and other building materials. Further, that a large proportion of the money supports domestic consumption is an indicator that only a small proportion of the potential remittances finds its way home.
This is largely because many households through who much of this money is channeled, are not savvy in high finance and may not invest in such debt instruments as bonds and shares in new ventures. There is also the issues of many in the diaspora trusting their relatives with their funds only to come to grieve.
This is a signal that there is room for more money coming home if we found a way of channeling it to profitable areas, both to the economy and the individuals. The question then is; how do we make remittances profitable for Kenyans living abroad?
Answering that question correctly would also answer the questions how do we attract remittances into the national development agenda?
Here we dare propose the creation of a Special Purpose Vehicle to attract remittances and channel them into nationally profitable areas such as food security and global housing. We are talking about transforming remittances from philanthropic ventures whose only reward is the degree of personal satisfaction to Commercial ventures with a financial return.
Some studies have found no correlation between remittances and economic growth in the recipient country. This is because the remittances are directed towards meeting basic family needs which exclude national development goals.
In these days of high-speed internet and other advances in Communications technology in the financial sector, that is almost criminal.
An SPV would fit the bill. The vehicle would sell shares or long-term bonds in a project, say irrigation of one million acres. Since large-scale -irrigation is a high-skill activity, the SPV would contract skilled people to manage the irrigation scheme and sell their produce. It will then pay the bond or shareholders from their profits.
The same can be done in the housing sector and green energy generation especially geothermal, wind and solar. These are development sectors that enable the growth of other sectors such as industrialization whose major bottleneck is the availability of electric power.
Such a vehicle(s) is an incentive for Kenyans living in the Diaspora to invest at home and support the national development agenda.
That will plug the hole in our budget and reduce the need to borrow as the government would transfer financing of such services to the “Diaspora sector,” for a financial return. We are filing tax returns from our desktop and getting certificates of clearance in a similar way. The same technology can be harnessed to sell shares and bonds and get certificates of purchase in the same way.
It would also support the growth of other sectors as the government will need to focus on infrastructure projects that the Diaspora cannot directly engage in without paying taxes.
The financial sector cannot mobilize such funds and even if they do, the cost of borrowing the same funds will rise.