The country’s diverse and vast diaspora community spans globally, making the push for a diaspora bond and calls for Kenyans living abroad to invest back home more significant. 

In the past few weeks, the country’s top leadership has been apprising Kenyans living abroad on the implementation of various government development agendas and wooing them to invest back home.

Recently, Deputy President Rigathi Gachagua urged Kenyans living abroad to invest back home, stating that the country has political stability, the economy is showing greater signs of recovery, and the government is managing to contain the cost of living. 

Prime Cabinet Secretary and Cabinet Secretary for Foreign and Diaspora Affairs Musalia Mudavadi has on several occasions called on Kenyans in the diaspora to use their knowledge and expertise to develop their home country. 

The Prime CS has been reaffirming the government’s commitment to supporting the diaspora community in their endeavours, both abroad and in Kenya. 

The country’s top leadership has been suggesting potential investments to enhance the government’s economic and social transformation agenda. According to the International Organisation for Migration, World Migration Report 2022, the population of Kenyans living in the diaspora is estimated to be over four million. This number continues to rise as more Kenyans travel outside the country in search of education, training, employment, health, and economic opportunities, among other reasons. 

Additionally, the first Diaspora Remittances Survey, conducted by the Central Bank of Kenya (CBK) in 2021, showed that the average cost of sending funds was four to five percent of the amount sent.

The CBK report added that the cost was relatively higher for the Europe – Kenya and Asia – Kenya remittance corridors, averaging six percent of the amount remitted. America is the largest source continent of remittances to Kenya, accounting for 58 percent of total remittances.

In 2023, CBK reported that remittances inflows from Kenyans living abroad reached a record high of USD4.19 billion (Ksh544.7 billion) – (exchange rate: USD1= KES130.38), marking a four percent increase from the previous year’s USD4.028 billion (Ksh523.64 billion).   

Kenya’s anticipated diaspora bond

Early this year, the government started working on a dollar bond for Kenyans in the diaspora to enable them to contribute to the country’s economic transformation.

Mr Mudavadi, while on an official visit to the US towards the end of January, announced that the World Bank’s risk insurance and credit enhancement guarantee arm, Multilateral Investment Guarantee Agency (MIGA), was working with the National Treasury on structuring a diaspora bond. Mr Gachagua also mentioned this issue of Kenya potentially floating a diaspora bond on April 23, 2023. 

This will not be the first time Kenya is pursuing Kenyans living abroad. In 2011, the Central Bank of Kenya (CBK) targeted the country’s diaspora for the first time in the sale of Ksh36 billion (USD399.9 million) infrastructure bonds in the 2011/2012 financial year. The government was seeking to raise USD600 million from the sale. However, the bond was under-subscribed. 

Case studies in Africa

African governments have increasingly taken steps to attract investment from their citizens in the diaspora.

A few years ago, Ethiopia’s banking regulations were liberalised, allowing the Ethiopian diaspora with foreign citizenship to invest and buy shares in private commercial banks, set up lending businesses in the state-dominated financial sector, and contribute to major infrastructure projects. In 2008, the country issued a diaspora bond to finance projects for Ethiopian Electric Power, a state-owned entity, and again in 2011 to finance the Grand Ethiopian Renaissance Dam (GERD). However, it was reported that both attempts failed to achieve the expected results due to real and perceived risks. In particular, investors lacked trust in the government. 

Nigeria is another interesting case study. In 2017, Nigeria raised nearly USD300 million in its first-ever diaspora bond. The Nigerian government was looking to get its citizens living abroad to put some money towards funding its USD23 billion record deficit budget.

These numbers show the potential of tapping the diaspora for further financing.  

Challenges 

Despite the potential, diaspora bonds remain underutilised and face significant limitations. In Africa, countries like Egypt, Ethiopia, Nigeria and now Kenya have attempted to utilise diaspora bonds. It is stated that only two countries, both outside Africa, have established multiple successful rounds of diaspora bonds. That is, India and Israel. 

The two (India and Israel) relied upon various institutional mechanisms that enabled their success. India relied on a global network of Indians and foreign commercial banks that specialised in dealings with Indians in the diaspora to facilitate uptake, while Israel registered its bond with the US Securities and Exchanges Commission (SEC). 

Analysts say that African countries that have experimented with diaspora bonds, most have only gone through one relatively successful round, or the funds have failed to attract much interest. 

They add that the risk of defaulting on diaspora bonds, volatility in African financial markets due to overreliance on commodities like in the case of oil in Nigeria, and lack of transparency and confidence in domestic financial markets have decreased diaspora interest in these instruments.

How to address these challenges 

According to the Brookings Institute – an American think tank that conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, global economy, and economic development – given the potential of these bonds, African governments can actively take several measures to improve the investment appetite for bonds initiated by the African diaspora.  

Brookings says the bond issuers should endeavour to strengthen the governance of the bonds, including reporting in detail how the proceeds are used. Secondly, policymakers should demonstrate the link between the bonds and a credible country development strategy that advances sustainable economic growth and fosters a conducive investment climate.

Third, policymakers should target specific projects or enterprises that produce sufficient economic value to support bond repayment and meet significant needs of the broader population, such as telecommunications or infrastructure.

Fourth, governments and bond issuers should work to enhance bond credit in line with the standards of international development agencies and financial institutions. Fifth, any bond will have to conform to the governance and transparency standards of the US Securities and Exchanges Commission (SEC). 

Additionally, the Brookings team says Western governments and financial institutions should consider lending their expertise and funding to African governments as they launch diaspora bonds. This represents new sources of investment capital that can be channelled into development projects.