Muna Wahome
20 September 2008
Nairobi — Kenyans in the US and their families back home appeared poised to pay a heavy price as the American economic turmoil continued unabated.
Anecdotal evidence shows Kenyans are increasingly opting to brave the relatively improving economic situation here than remain in the convulsed US economy.
Whereas the majority of Kenyans are in basic jobs that they may not easily lose, the credit crunch is taking its toll.
"Most people have lost their homes, their cars ... and it's very hard to borrow in the US these days," says businessman Wilfred Saroni, who has returned to establish a call centre so as to save on labour costs.
The consumerist US economy allows individuals to live on credit rather than disposable income and, average indebtedness is 137 per cent of incomes.
That means Kenyans have been sucked into a system whose population has borrowed an unprecedented $8,565 (Sh620,000) each; households owe a total of $2.56 trillion in debt.
"To tell you the truth, the reason why many Kenyans are hanging in there is because they can't afford to pay their way back or are too ashamed to face their relatives back home given their plight," said a man who returned mid this year with his family. The population of Kenyans in the US is estimated at 350,000.
Remittances from abroad fell sharply after peaking in April (during the Safaricom IPO) possibly egged on by the US crisis, where 600,000 jobs have been wiped out this year according Democratic presidential contender Barack Obama.
Kenyans from all over the world sent in $67.7 million (Sh4.9 billion) in April, but the figure has since consistently fallen to a mean of $45 million going by Central Bank numbers. The crisis is not confined to the US, as the whole world is grappling with oil-fuelled inflation and general economic slowdown.
The fall in money remitted by the diaspora has a negative bearing on the Nairobi Stock Exchange and the construction industry where the Kenyans abroad have been very active.
The Sunday Nation has learnt that Kenyans in the UK singularly pooled funds for investing in Safaricom, which partly explains the heavy oversubscription and remittances around the time.
They lived to regret their decision though, as the share value sagged. "People invest income they can spare. So there is going to be an impact but not a collapse," says Renaissance Capital chief executive Maina Mwangi. "The foreign investment in our Exchange is minimal and US investors here are mainly Africans with a better understanding of the situation. Markets which are suffering more include Russia, China and Brazil."
Still on the stocks front, a lot of outflows from 'frontier' markets are on the cards as funds ebb back to the advanced markets to take advantage of the battered stocks. New inflows will be hard to come by as investors from the West struggle to survive.
Equally afflicted by the crisis are professionals working in the US financial sector. American International Group Inc (AIG), who own synonymous insurance and fund management arms here, banks Lehman Brothers, Fannie Mae, Freddie Mac and much earlier Bear Sterns -- all icons of American capitalism -- are either belly up or been rescued by the federal government.
A top executive at a Nairobi bank with global connections told the Sunday Nation he had so far interviewed 10 Kenyans who previously worked in the US, where a financial bubble lasted years.
The senior banker said another 20 have sent emails enquiring about opportunities as incomes fall amidst heavy personal debts.
Most Kenyans living in the US are not professionals but lowly paid employees who, on the most part, are there on expired student visas.
Nearer home, AIG Kenya and Uganda last week distanced themselves from their $1 trillion parent US company's woes.
Flaunting their cash surpluses and solvency margin, they however pointed out that treaties with AIG -- recently bailed out to the tune of $85 billion by the Federal Reserve -- are still in force.
At the macro-economic level, hard economic times will affect tourism dollar inflows from the US, a tide that may slightly be stemmed by depreciation of the Kenya shilling, which last week touched a low of Sh74 to the dollar.
The Kenya Tourism Board said 101,879 US tourists, normally high-yielding upcountry visitors, came in 2007, compared to 86,528 in the previous year. This is one-tenth of total arrivals.
Trade between the two countries is hardly a major factor, as it favours the US. In 2007, Kenya exported Sh19.2 billion worth of goods in exchange of Sh40.8 billion in imports.
Aid inflow from the US could be affected but it is traditionally nothing much to write home about. If the crisis does not peter out quickly though, generous economies like China, which is fired by US exports, may grow meaner.
It may look as if only "push" factors are bringing Kenyans home. However, according to banking industry sources, this has also been happening due to renewed economic growth over the past five years which has pulled back professionals into corporates.
The phenomenon has been replicated in other sub-Sahara African countries with large diasporas, whose economies have been booming. This year, the one-time laggard is forecast to experience a robust expansion 6.5 per cent despite oil price rise and US economic woes.
Are we likely to see mass exodus from the US particularly of the menial jobs class? Some don't think so.
"The US has always been a magnet for such people, and they won't leave just because of that. Also, the US is a highly flexible society when it comes to pay; so what will most likely happen is that those Kenyans' pay will drop," says the senior banker.
For years, the US has depended on export-driven countries like China and India who were piling dollar reserves through US Treasury bonds as they exported to the globes' largest economy.
The Chinese cash only helped push the economy into a debt trap even as the fabled Fed chief Allan Greenspan continually kept interest rates low and encouraged reckless borrowing by households and corporates.
"More than 600,000 Americans have lost their jobs since January. Home foreclosures are skyrocketing, and home values are plunging. Gas prices are at an all-time high, and we're still spending more than $10 billion every month on a war in Iraq that should never have been waged," says Mr Obama.
He says the crisis results from "bad decisions made in favour of big corporate special interests instead of America's working families".
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