A section of financial institutions bosses have predicted further depreciation of the Shilling come January 2024. In a survey that was conducted by the Central Bank of Kenya (CBK) a section of 302 fielded CEOs explained that the Shilling depreciation would be caused by five factors including the country’s maturing debt and persistent dollar demand by importers.
Kenya is set to pay off a Sh500 billion Eurobond in December, and the decline in exports from Kenya and the reduced foreign direct investments were also highlighted as factors that could make the Shilling shed its value further. Some experts have predicted that the dollar will continue to remain dominant heading into January as has been the trend over the last few months.
The depreciation of the shilling has affected the economy and Kenyans considering that it has also led to the growth of the country’s debt stock given that most of the debt was taken in dollars. The shilling’s free-fall obtains despite CBK Governor Kamau Thugge and Treasury CS Njuguna Ndung’u’s assurances that it would stabilise in the coming months owing to various interventions undertaken by the government – including successive base lending interest rate hikes that have increased the premiums consumers pay monthly to commercial lenders.
There is a simple yet overlooked explanation for this.
Kenya’s economy is overwhelmingly import-dependent; we import commodities we have or that we can produce in abundance, including food and clothing. Our productive activities are underwhelming, and we have failed to develop our agricultural, manufacturing, mining and human capital.
Take, for instance, the sugar industry. Whereas the domestic sugar producers met 72 per cent of the Kenyan needs a decade ago, that rate is now down to around 40% in the most recent years. In the meantime, the domestic sugar price has been controlled and set significantly higher than the price in the international market. It is a bonanza for sugar importers who have ganged up to control official policy to keep the status quo, including by delaying the reform and restructuring of the industry.
This is the story of Kenya’s manufacturing sector, whose share of GDP has declined from a peak of about 13% in 2007 to 6.7% today.
The easiest way to help manufacturing is to remove production-defeatist policies. Many Kenyan manufacturers have managed to retain their historical positions as technological leaders in East Africa but are constantly bogged down by bad policies.
We must stop killing manufacturing. If we allow competitive Kenyan manufactures to do what they do well, we can enter a phase of industrialisation that will allow us to turn the tide of trade biases, build up the economy, create jobs and reverse forex deficits. What we urgently need is a permissive industrialisation strategy – with the right policies, tax regime and incentives.
While this is simple to implement technically, the difficulty lies with political goodwill. The political leaders, whose primary job seems to be rent-seeking to defeat sound strategy and policies, are the one hurdle we must overcome.
It will take not just moral courage, but also tenacity and ingenuity, but, the payoff for the country will be enormous. If there ever was a proverbial “low hanging fruit,” this is it.
