Safaricom, Equity Group Shine as Diaspora Remittances Hit 21.6 Percent

The Central Bank of Kenya reported a 21.6 percent y/y jump in diaspora remittance to USD 336.7Mn in July.

This represented a 20.0 percent y/y increase in 7M21 and a 20.3 percent y/y increase in the 12 months ending July 2021.

From the report, the US accounted for 58.3 percent of the remittances in the review month, totaling USD 196.3Mn.

The rising remittances helped deflate the overall current account deficit, whose cumulative 12-month merchandise trade deficit stood at KES 1.2Tn in June while Services receipts have been impacted negatively by COVID-19 fallout.

Overall, this resulted in an estimated Current Account Deficit of 5.4 percent in the review month (June).

Genghis Capital holds that the uptick in diaspora remittances has been boosted by the democratization of distribution channels. This has been exacerbated by money remittances providers integrating their platforms with partners that offer the last mile services, either through a bank account or mobile money wallet.

On this point, Safaricom and Equity Group are emerging clear winners. For the latter, it announced processing KES 167.2Bn as diaspora remittances in 1H21, representing 87.9 percent of total transaction volume in the period.

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This has been possible due to increased strategic partnership with international payment partners.

That said, the diaspora remittances are yet to be formally harnessed towards public capital investments as initially envisaged in the draft Post COVID-19 Economic Recovery Strategy.

The Strategy sought to increase diaspora remittance to KES 500Bn annually and also to provide incentives to the diaspora to facilitate investments into key sectors of the economy.

meanwhile, CBK announces 21-year IFB as September primary offer Secondary market activity was steady on a weekly comparison, attaining turnover of KES 20.8Bn (-0.2 percent w/w).

The trading activity was biased towards the on-the-run 20-year paper (FXD1/2021/20) which started trading in the week.

Yields on the paper fell 7bps from its auction average (13.44 percent) to close the week at 13.37 percent.

Interest in the discounted securities jumped in the week, on the back of a subpar previous auction that was depressed due to the coinciding primary bond sale.

To be sure, interest in the T-Bills was concentrated on the 91-day tenor and 182-day tenors which clocked subscription rates of 303.6 percent and 152.3 percent, respectively.

For the 364-day tenor, the subscription (KES 1.0Bn) was the lowest uptake since the cancellation of the last weekly 364-day auction in December 2016.

The central bank announced a 21-year infrastructure bond (IFB) targeting to raise KES 75.0Bn in next month’s primary bond offering. This will be the third IFB offering this year, following the issues in January (16-year) and April (18-year).

The liquid environment strengthens our view as the overarching driver behind the September primary bond choice.

Following last week’s apex mop-up of excess liquidity via Term Auction Deposits (TADs), the outstanding TADs as we start the new week totals KES 55.25bn at a weighted average rate of 5.387 percent.