Paradox of poor Kenyans with a strong shilling
SEE ALSO :Shilling weakens on importer demand“A strong shilling makes imports cheaper. So, consuming a product that has import content is cheaper,” says Mr Olaka. And just about everything that Kenyans consume is imported. Job Wanjohi, the head of policy, research and advocacy at the Kenya Association of Manufacturers (KAM) says the firming of the shilling at an exchange rate of between 98 and 101 against the US dollar in the last six months has cushioned manufacturers from losses occasioned by fluctuation of the exchange rate. Cushioned from losses “For instance, manufacturers who import under Duty Remission Scheme for exports to East Africa Community have been cushioned from losses as a result of stable buying and selling of hard currencies, when importing raw materials and exporting finished goods,” he says. Indeed, companies such as Total and Kenol Kobil that are involved in the importation of petroleum products, a significant input in the production of a lot of consumer products, have gained a lot from a strong shilling. Total reported a foreign exchange gain of Sh34 million in the first six months of 2018 compared to a loss of Sh109.6 million in a similar period in 2017. “The foreign exchange gain of Sh34 million is mainly attributable to the stability of the Kenyan shilling against the major currencies compared to a more volatile exchange rate in the first half of 2017,” said Total in a statement accompanying its half-year results. It was the same with Kenol Kobil, another NSE-listed petroleum dealer. The firm reported a net forex gain of Sh27.2 million in the period under review compared to a loss of Sh25.6 million last year. However, Wanjohi says, as much as the stability of the shilling has eased production expenses, the gains have been eroded by other costs of production. “It is impossible to feel the full effect of this stability due to factors such as the cost of power, import declaration fee and the railway development fee.” He says that while a stronger shilling should enable manufacturers to experience stable wholesale and retail prices, the benefits are distorted by increased costs of production as well as high demurrage from inefficient logistics. It also seems that the shilling has become stronger at the expense of Kenyans; that the shilling has got fatter by avoiding the pockets of farmers, mama mbogas, boda-boda riders, jua-kali artisans, shopkeepers and other small traders. “In an ideal environment, when the CBK prints more money to be circulated into the economy, the currency should weaken,” says Johnson Nderi, Corporate Finance and Advisory Manager at ABC Capital. He says that CBK, which is charged with the mandate of regulating the prices of goods and services in the economy, can print more money by lowering the interest rate. A lower interest rate will nudge commercial banks and other financial institutions into lending more as the cost of credit goes down. And with increased supply of the shilling in the market, its demand would sag. “When you deposit one shilling, it can be lent several times,” says Mr Nderi. But this is not happening, with commercial banks unwilling to lend and money supply being constrained due to the interest rate cap. It is not all that rosy for everyone when the shilling strengthens. A strong shilling may not have been that good for exporters. Less money A strong shilling means that traders who sell their products abroad get less money when they convert the foreign currency into shillings. This, in effect, reduces their purchasing power. “A coffee farmer, for example, will get less for his produce,” explains Olaka. Indeed, the value of coffee exports declined significantly in the first six months of 2018, dropping by nine per cent in the first half of 2018 to Sh13.8 billion compared with Sh15.2 billion last year, in what some analysts have attributed to a strong shilling. A strong shilling against other currencies partly explains the increased quantity of imports from Kenya’s neighbouring countries such as Tanzania and Uganda, whose currencies have been on a retreat against the dollar. On the other hand, exports to the region have taken a beating as a result of a strong shilling, with the Kenyan currency gaining about two percentage points against the dollar to date. By June, the Ugandan currency had depreciated by 3.6 per cent against the dollar since January while the Tanzanian one weakened by 1.8 per cent against the greenback.