Central Bank under pressure to weaken the shilling, boost trade
Zachary Ochuodho @zachuodho
Economy experts have petitioned the Central Bank of Kenya (CBK) to devalue the shilling to boost the country’s exports, especially in the manufacturing industry.
This comes after it emerged that Kenya’s exports have been dwindling in the past mainly due to the stronger currency. They argue that a weaker shilling would boost export trade.
Analysts say the shilling is the only currency in East Africa that has continued to appreciate, thereby making its goods expensive compared to those of Uganda, Tanzania, Rwanda and Burundi.
Speaking during the NCBA 2020 Economic Forum in Nairobi yesterday, Kwame Owino, Institute of Economic Analysis (IEA) chief executive officer, said that a number of countries in Africa, where Kenyan exports used to dominate, have now reversed the trend.
“Studies by IEA show that while many currencies have depreciated against the dollar, the shilling has on the other hand, appreciated by 0.9 per cent,” he added.
Owino said for Kenyan goods to compete effectively in the export market, the products need to cost cheaply so that companies can export more.
Economic Survey for 2019, says the value of imports rose by two per cent but the trade balance widened by 1.4 per cent to a deficit of Sh1.15 trillion from a deficit of Sh1.132 trillion in 2017.
Cosmos Ltd executive director Vimal Patel supported the devaluation of the shilling, saying it could help reduce the trade imbalance between countries and Kenya.
He said a lot of drugs being imported from Pakistan and India, are available in the local market but were costing more due to many things among them the stronger shilling.
Genghis Capital analyst Churchill Otieno, however, differed, saying even if the shilling was devalued the manufacturing sector would not have anything to export.
Dicey matter
Dr Peter Chacha, Senior Country Economist at World Bank, said the devaluation was good, but only if it could be done progressively not at once. He said devaluating the shilling now was a dicey matter that requires those with skills.
Former CBK chairman and Senior Economic Advisor at the Executive Office of the President Dr Mbui Wagacha said currency devaluations are used to achieve economic policy.
“Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts,” he added.
Wagacha said the shilling was strengthening due to the diaspora remittance and high forex reserves – which are used to help pay the external debt.
NCBA Group managing director John Gachora said: “The interplay between the policy landscape and businesses warrant continuous evaluation of the policy environment which has become increasingly unpredictable.”
He acknowledged that Kenya remains at a relatively solid place relative to its sub-Saharan Africa peers.
He said growth has remained positive and strong and is expected to remain close to the estimated potential growth of 6 per cent in 2020.
Gachora said high unemployment, stagnant incomes, uncompetitive business landscape and growing debt burden could inhibit growth in the short term.
