A weak shilling is a blessing in disguise

Lulu Kiritu 

Recent research, presented at the Renaissance Capital Annual East Africa Investor conference, shows the Shilling is valued at Sh104 agains the dollar. This is a clear indication of the shilling’s depreciation. 

According to Central Bank of Kenya reports, when the shilling depreciates against major world currencies (especially the dollar), it becomes more expensive to finance imports.

This in turn results to an increase in the cost of living. In April, the annual inflation rate peaked to 6.58 per cent from 4.44 per cent. 

A weak shilling, however, means higher profit margins for our exports. This translates to relatively higher returns in the Agro industry, which is the leading foreign exchange earner.

According to research, depreciation of the shilling promotes domestic investments which creates employment through local manufacturing.

It is quite evident that the Kenyan economy has recently had a boost as a result of the shilling depreciation. There has been an increase in the value of exports amounting to Sh107.55 billion this year. 

According to research by Fitch Solutions, price growth will accelerate to an average of six and 6.2 per cent in 2019 and 2020 respectively, up from a projected 4.7 per cent in 2018.

In the longer term, there is expected further weakening of the shilling, largely due to overvaluation and dwindling growth. 

Kenya’s economy is by far and large, market-based and service-driven. Literally, these are the fuel and pistons that power and charge the engine of our economy.

For the better part, they have contributed to a sustained year over year annual economic growth of more than five per cent. The downside, however, is that these are not mass employment creation sectors; manufacturing is. 

A weaker shilling indicates a scenario where imports become more expensive to ship into the country.

This averts the threat and unfair competition to our local industries brought about by cheap and sometimes substandard imports from South-East Asia.

With manufacturing being a proven model for increased and sustained economic growth and creating mass employment opportunities for hundreds of thousands (if not millions) it explains why the President Uhuru Kenyatta made manufacturing a key pillar in transformation blueprint.

Kenya urgently needs a strong and vibrant manufacturing industry in order to create employment for the millions of jobless youths, who account for more than 75 per cent of the demographic, and spur greater and faster economic growth.

Some countries have deliberately harnessed the power of a weaker currency. China, for a long time had been criticized by the US for unfairly devaluing the Yuan, thus, giving it an unfair advantage in global trade over other major world economies like the latter. 

Therefore, it is important to employ smart economic tactics in order to find an edge in global trade.

This will ensure Kenya becomes economically competitive in global trade and addresses the crippling trade imbalance where Kenya, most often than not, finds herself holding the short end of the stick. - The writer is a public relations practitioner for KenTrade