Oct 11, 2015

A diaspora is a group of people, similar in heritage and origin that have migrated out from their homeland, but still maintain a significant interest and connection back home. According to the United Nations, over the last 45 years, the number of persons living outside their country of birth has more than tripled from an estimated 75 million in 1960 to over 231 million in 2013, representing 3% of the world’s population. Out of this, 18.6 million are from Africa.

In this investment opportunity focus, we wish to highlight the importance of the diaspora, their location, needs from an investment perspective, challenges when it comes to investment in Kenya, how private sector players such as Cytonn can position to be their trusted partner, and the ultimate benefits to the Kenyan economy. However, it is first important to showcase a country that has done well based on the effect of their diaspora, and we wish to showcase India.

Diaspora remittances are an integral part of the economy and if utilized well can contribute largely to the socioeconomic development of its people. Taking India for example, as at 2013, it received USD 70 bn from remittances emerging as the top beneficiary in the world followed by China. According to the Ministry of Overseas Indian affairs, the total remittances back to India from the Indian diaspora accounts for 22% to 23% of the country’s total foreign exchange earnings. From an economic standpoint, remittances contribute about 4% of the total GDP of India, helping to support the overall Balance of Payments. Since 1991, remittances amounted to USD 2.1 bn and have since grown by compounded annual growth rate (CAGR) of 17.3% to USD 70.0 bn as at December 2013. This growth is highly attributed to (i) the boom of the IT industry that saw immigration of skilled IT professionals from India to the US, who accounted for USD 65 bn of the total USD 70 bn, (ii) the Government’s initiative to de-regulate the interest rates on the remittance accounts making the cost of sending money to India cheaper than other countries, (iii) the focus on enabling Diaspora engagement, such as the creation of the Ministry of Overseas Indian, which is dedicated to Diaspora matters, (iv) the existence of a Diaspora Policy, and (v) the strength of the dollar with respect to the Indian rupee that led to more Indians remitting back money

The relationship between India and its diaspora has been strengthened over the past years owing to the contribution of the diaspora to the economy in the following ways:

1. The improvement of the socioeconomic status of the Indian population owing to the contribution of the remittances to economic growth by reducing the poverty levels;
2. Transfer of knowledge and entrepreneurial skills which has built India, and especially the cities of Bangalore and Delhi as global IT hubs and services centres;
3. Contribution to the rise of the service sector in India especially in the IT sector, which has provided an avenue for employment, growing wages with the skilled labour set and improving the standard of living in India.

Having seen the benefits that an economy like India has gained from the diaspora, we now analyse the diaspora in Kenya. The number of Kenyans living in the diaspora has steadily been on the rise and currently stands at over 3 million, with United Kingdom and United States of America having the highest concentration of the Kenyan Diaspora, each with approximately 152,000 and 102,000 Kenyans, respectively.

Taking US as a case study for where the Kenyan Diaspora live and their characteristics, we note that the majority of the Kenyan population is located in Texas and California, with Dallas having the majority at 7.8%. The Kenyan born population in the US is fast growing and is now the 2^nd highest contributor to diaspora remittances into the country after the United Kingdom. Kenyans have been legally admitted into the US either through (i) family sponsorship (3%), (ii) employment sponsorship (7%), (iii) as a refugee and asylee (26%), (iv) the diversity VISA programme (28%), or (v) being an immediate family member to a US citizen (35%).

The characteristics of the Kenyan diaspora population in the US are very unique:

1. Highly Educated: 30% of the Kenyan population in the US aged 25 years and older possess a bachelor’s degree as opposed to the US national average of 20%; 16% of whom possess an advanced degree as their highest credentials against an 11% US national average;
2. Economically Successful: In 2014, Kenyan diaspora households in the US recorded a high median annual income of USD 61,000, USD 11,000 higher than U.S households. 31% of Kenyans reported incomes of above USD 90,000, the threshold for the top 25% of the US population while 13% reported incomes of above USD 140,000, the threshold for the top 10% of the US population. With the average members per household coming in at 2.6 members, which is marginally equal to the US national average of 2.5 members, the amount of disposable income among the Kenyan Diaspora is high, of which they can channel into investments;
3. Hardworking: With this high level of education, it is easier for Kenyans to join the workforce as evidenced by the fact that 80% of Kenyans in the US are in the workforce as opposed to a 64% US national average.

In the past 5 years, total diaspora remittances into Kenya have increased by 156% overtaking tea and horticulture as the top foreign exchange earner. It is a more stable source of inflows as it is not susceptible to changes in weather and world prices, which have seen tea and horticulture lose their top status.

Despite this rosy outlook, the Kenyan diaspora lacks a trusted partner to whom they can invest with. According to the Rockefeller Foundation-Aspen Institute Diaspora Program, the Kenyan diaspora are less likely to report annual income from investment sources, which include dividends, rent and interest income. In 2014, about 12% of Kenyans received income from dividends against the 15% US average. In addition, the share of Kenyans earnings from rent was negligible and the median interest income stood at USD 100 compared to USD 157 from US households. This highly affirms the fact that the Kenyan Diaspora is faced with investment challenges, which include:

1. Special Products: lack of structured investment products that are tailor-made to address their needs, and these exist mainly in real estate and fixed income investment opportunities;
2. Partners: lack of a trusted partner who truly represents their interests, and is an institutional firm providing institutional grade investment solutions and client service;
3. Platforms: the inability to safely and conveniently remit funds back to their country.

Cytonn Investments through Cytonn Diaspora, a platform that serves to bridge this gap and offer the Kenyan Diaspora a trusted investment partner, is addressing these challenges. Over the past 5 years, returns in the alternatives market classes, Private Equity and Real Estate, have outperformed other traditional investment classes, thus the reason why Cytonn focuses on these investments solutions.   The chart below is an indicator of the same:

However, despite the attractive returns offered by alternative investments solutions as shown above, there are very few products of this nature being offered to the diaspora, other than the real estate brick and mortar. Cytonn Diaspora fills this gap by providing a unique platform that has:

1. Investment Opportunities: The platform links Kenyans in the diaspora to trusted investment opportunities in Kenya, in real estate and fixed income products. Cytonn identifies an investment opportunity, does due diligence and confirms its suitability for diaspora investment;
2. Development Partners: Cytonn partners with developers, namely Cytonn Real Estate, to provide institutional grade real estate products that the diaspora can invest in. For Cytonn Real Estate developments such as The Alma in Ruaka, Cytonn Real Estate will provide full facilities management for the units to remove the operational burden of real estate for the diaspora investor;
3. Lending: Preferred banking partners will provide lending for those investors who wish to access end-user financing to access real estate investment opportunities.
4. Research and Investor education: Cytonn believes that all investors should have adequate information as they make investment decision and hence the reason why, we publish the key trends in the market to aid in investments.

As we provide these benefits to the diaspora investors, we are able to have a positive impact, which will also build the Kenyan economy, similar to the example shown for India. The benefits of the Kenyan Government focusing on the diaspora are significant:

1. Foreign Exchange Earner: On an YTD basis, the Kenyan Shilling has depreciated 13.7% and a major factor leading to this is the decline of foreign exchange inflows from the traditional forex earners such as tea, tourism and horticulture. Diaspora remittances has recently emerged as the top exchange earner for the country and due to the potential it possesses, the right platform to which Kenyans in the diaspora can remit back funds will go a long way into addressing such challenges facing the economy;
2. Trade: The connection between the diaspora and the country of origin facilitates trade, as a natural connection is created between consumers and producers, in that people in the diaspora procure goods and introduce them to the global markets;
3. Investment: Kenyans in the diaspora who invest directly have the opportunity to introduce other investors into investing in Kenya, which mobilizes wealth for development;
4. Real Estate: Kenyans in the diaspora are looking for opportunities to settle back in their homeland, or to provide for family members back home. Given the importance of real estate to the GDP, by providing a trusted platform and partner through whom they can access the opportunity, the country will benefit and the sector will grow even further to promote growth and create employment;
5. Skills Transfer: Diaspora gain valuable skills, experiences and contacts abroad that they can transfer back to Kenya, which will create new ideas and encourage entrepreneurship and grow the economy away from a dependence on agriculture, to one based on skills and services;
6. Improving Standards of Living: Through increased investment opportunities, skills transfer and real estate access, an avenue is provided to create employment, grow wages, enhance the skills of the population, encourage new ideas and innovations, and improve efficiency in our operations. Through this avenue, Kenya will benefit by improved standards of living in the country and ultimately see a significant positive contribution to GDP growth.

Given the significant benefits we stand to gain from the diaspora, it is critical that the private sector and the government work closely to create an enabling environment for the diaspora.

For Cytonn, we believe that our Diaspora platform will be an important contribution to improving diaspora engagement. Further to this, we have a team with vast knowledge and experience in the Financial and Real Estate sectors currently in the United States on the Cytonn Diaspora Roadshow. More information can be found on our website through this link

To be a part of this roadshow, please contact us at roadshow@cytonn.com, and for investment opportunities in real estate and fixed income, please e-mail us at sales@cytonn.com

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Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted- as the facts may change from time to time. This publication is meant for general information only, and is not a warranty, representation or solicitation for any product that may be on offer. Readers are thereby advised in all circumstances, to seek the advice of an independent financial advisor to advise them of the suitability of any financial product for their investment purposes.