The last time I checked the Kenyan shilling, it was hitting 92 against the dollar. Over sometime now, the demand for the dollar has been on the rise. The Kenya monetary body has opted to keep way from the market. I applaud the Central bank for this bold move has it has helped maintain the market confidence. The weakening shilling means Kenya Balance of payment (The difference between export and import receipts) will continue to be unfavorable.
Kenyans are amazing people; they often forego the locally produced cheap substitute goods for ‘foreign’ ones. The move has seen import receipts triumph over exports. The demand for the dollar often increases when the importers need to convert the local currencies into US$ before they acquire commodities. The exports have reduced drastically over the past 5 months and various issues are to blame. First, the drought; Kenya being an agricultural nation and relying mostly on the exportation of cash crops was largely affected by this natural calamity. The drought paralyzed farming in most parts of the country, this reduced the amount of exports to the international market which drove the shilling upwards. Secondly, the high inflation rates, the inflation figures hit 16.5 % in the month of August and this discourages investment. The rapid inflation erodes the market confidence and discourages investors. Investments could have increased the demand of the shilling, which could have relatively stabilized the shilling by countering the dollar demand. Lastly, price controls, the controls coming in the 21st century are a blow to new investors and manufactures. With the ever-rising cost of doing business in Kenya, the move by the government is insensitive to the private sectors. Most manufactures will be forced to close down or move to other countries to survive. The jitters caused by the government move, a move that in my opinion is unnecessary have aggravated the weakening of the shilling by scaring away new investors.
However, the weaker shilling is a blessing in disguise to the exporters; some are even hoping that the devaluation doubles in the following months. The individuals who export goods and services are paid in US$ and normally smile all the way to the bank. The Kenyan government failure to encourage exports and attract foreign investors is largely to blame for the weaker shilling. In addition, the queer behavior of Kenyans of over valuing ‘foreign’ products than locally produced is to blame. Therefore, what is the way out of this ‘crisis’? It’s time we demand export incentives to encourage more people to venture into export business, the government needs to further develop existing industries to meet the needs of the citizens while shunning away from the insensitive policies like price controls to attract investments.
By Wyclife Kipruto,an Economist interested in Doing policy-oriented research.