Kenyans faced with financial meltdown as US crisis deepens

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.