Shilling fall linked to 2012, as House urged to investigate

By Luke Anami

The Federation of Kenya Employers has cautioned that the free-fall of the shilling could be linked to next year’s General Election.

This came on a day that an MP has asked the Government to conduct an investigation into the weakening of the shilling.

FKE now wants the Government to come clean and explain the unprecedented depreciation of the shilling a year before next year’s elections.

"The shilling is in a free fall. It is not very clear what is going to happen tomorrow and that is very disturbing for businesses because you cannot plan," Ms Jacqueline Mugo, Chief Executive Officer of the FKE, said at a press conference held Friday at Waajiri House, Nairobi.

"It is not clear whether the fall of the shilling has anything to do with next year’s election or it is a genuine concern that we are going through. The Government should come clear and dispel the speculation."

Ms Mugo said employers, the private sector and Kenyans need to be protected.

"An unstable shilling has negative implications on the purchasing power of the Kenyans, something that in turn impacts on savings, investment and economic growth. The challenges that come with the instability of the shilling and the exchanges rate has great impact on investment, the cost of doing business and inflation," Mugo, who was accompanied by members of the FKE board, said.

Suspicious timing

She said the timing of fall is suspicious and the Government should come out to tame the sudden fall otherwise the public will continue to speculate and further hurt the economy.

"We would like to dispel this concern that just before elections this is what happens. While I welcome the Government’s decision to call for more consultations, employers want assurance that this is not going to get out of control."

Strong dollar demand on Monday saw the shilling fall to below Sh101.0 against the greenback, as importers, telecoms and energy firms moved to cushion themselves against a weak unit.

The local currency has been in free fall in recent weeks on the back of the euro woes, and concerns about domestic monetary policymaking.

"We as employers ask the Government to aggressively address the stability of the Kenya shilling and exchange rate. The Government needs to create conditions that allow for increased output of goods and services in the economy, thereby improving the living standards of the people," she explained.

At Sh101 to the greenback, the shilling recorded a 26 per cent decline since the start of the year — pushing inflation into the upper teens and undermining the growth outlook for the economy.

Monday’s slump is the 28th time this year it has reached new record lows. Twelve months ago, the thought of the shilling hitting Sh100 against the dollar was inconceivable after it established a plateau around the Sh80-81 level against the greenback.

"Measures put in place by the Central Bank of Kenya (CBK) are too little too late as the impact of the free fall of the shilling is long term rather than short term," Mr Hirji Shah, a businessman and FKE board member said.

Short term measures

"Inputs of all industries will go up as short term measures are not helping the economy. Import of oil and machinery will go up and the effects will be pushed down to the consumer," he said.

Before the late 2008 financial turmoil, the shilling traded as strong as Sh61 to the dollar amid roaring demand for frontier African debt. The shilling’s steep decline has exposed the Central Bank as unable to prevent the currency’s decline as the euro zone debt crisis prompts investors to exit riskier emerging markets.

CBK has tried several tricks in the past weeks to try and defend the shilling, first by restricting access to its discount window, then by directly intervening in the market to sell dollars, then by raising interest rates at an emergency meeting, but none has stemmed the shilling’s decline. It has lost 24 per cent of its value this year alone.

Prime Minister Raila Odinga has created a team of technocrats cutting a cross various sectors tasked with fresh measures to tame the shilling, a move Ms Mugo welcomed.

"Consultations with major sector players should be able to come up with a long term solution as opposed to piecemeal interventions by the CBK," she said.

Last Thursday the US Ambassador in Kenya Scott Gration, while addressing members of the American Chamber of Commerce-Kenya (ACCK), said the fall of the shilling could be as a result of a combination of factors beyond the boundaries of Kenya.

"Money from pirates circulating in the economy is like paper money. We must tame the privacy menace on the coast line of Kenya and the Horn of Africa as money from the pirates is not good for the economy," Gration said. He said it is not just the US duty to tame the piracy menace but the world’s.