Kenyan Shilling Hits Record Low Against Dollar, Prompting Economic Concerns

 

Photo of Kenyan Shillings

In a hurry? Here’s a quick summary…

• The Kenyan Shilling (KES) reached a new low of 163.50 against the US Dollar, prompting concerns among Kenyans.

• Key questions arise regarding the safety of individuals and businesses earning or charging in US dollars amid the rapid depreciation of the KES.

• Firms and employees are considering exclusive dealings in the US Dollar, with Kenya Power contemplating dollar-based billing after a significant annual loss due to KES fluctuations.

• Pressure mounts for salary payments in USD, particularly among employees of international organizations, NGOs, and multinationals, leading to a dilemma for recruiters.

• Finance expert James Mwanzia shares insights on the challenges faced by his fin-tech firm, citing the KES's rapid decline against major currencies and the impact on business operations.

• Mwanzia advocates for widening the tax net, addressing corruption, and emphasizes the need for a robust manufacturing sector as a solution to Kenya's economic misalignment.

• The news explores the root causes of the KES decline, including historical failures of successive governments and the burden of over 10 trillion in debt, leading to calls for legislative review regarding the use of alternative currencies in Kenya.

Is the Safety of Kenyans Earning and Billing in Dollars Assured Amidst the Declining Shilling?

As the Kenya Shilling (KES) plummeted to a new low of 163.50 against the US Dollar in the open market last week, a wave of unease swept across the nation, particularly among those most affected by the rapid depreciation of the currency. 

Key questions have emerged, with a primary focus on the safety of individuals and businesses earning or charging their services in US dollars. 

The concerns revolve around potential losses, diminished earnings, and the vulnerability to further shocks resulting from the declining KES, raising fears of jeopardizing a decent livelihood.

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Shift Towards Exclusive Use of US Dollar Gains Traction

Faced with this economic turmoil, numerous firms and their employees are openly contemplating a transition to exclusive dealings in the US Dollar (USD), excluding the use of the KES. 

This shift in perspective has gained momentum, fueled by the recent revelation that Kenya Power is considering implementing dollar-based billing for its power sales, driven by a significant annual loss of Ksh.3.19 billion attributed to KES fluctuations.

Pressure Mounts for Salary Payments in USD

Kenyan employees, particularly those employed by international organizations, NGOs, and multinationals, are exerting pressure on their employers to consider paying their salaries in USD. 

This push stems from the need to hedge against losses caused by the diminishing value of the KES on their monthly earnings. 

The demand for USD salaries has created a dilemma for blue-chip firms, especially when prospective employees insist on contractual conditions specifying salary payments in USD.

Legal Implications of Currency Payments

The scenario is complicated by the fact that several international organizations, NGOs, and multinational firms operating in Kenya currently remunerate their expatriate and senior Kenyan staff in either the Euro or USD. 

This practice is viewed by some as potentially breaching a provision in the Employment Act, which mandates employers to pay salaries in Kenyan currency. 

Failure to comply with this law constitutes a criminal offense, posing a risk of fines or imprisonment.

Business Challenges and the Fin-Tech Perspective

Entrepreneur and finance expert Mr. James Mwanzia sheds light on the economic challenges during a recent train journey. 

Mwanzia, a fin-tech entrepreneur, shares his experience of founding a digital finance firm that disburses quick digital loans to Small and Medium Enterprises (SMEs). 

Despite successful initial operations, the firm faced severe setbacks amid the COVID-19 pandemic and the erratic behavior of the KES against major currencies, leading to operational restructuring and employee layoffs.

Mwanzia's Dilemma and Insights on the Economy

Mwanzia expresses concern about the fast depreciation of the KES against the USD, Euro, UK pound, Ugandan Shilling, and Rwandan Franc. 

He contemplates the possibility of discontinuing operations in Kenya and focusing on other markets due to the economic uncertainty. 

Mwanzia emphasizes the need for the Central Bank of Kenya to intervene, possibly using USD to stabilize the KES. 

He highlights the predicament of his firm's employees, who have requested USD salaries to protect their earnings amidst the depreciating KES.

Taxation and Economic Solutions

Mwanzia advocates for widening the tax net, addressing corruption, and promoting equity and equality in taxation to enhance compliance. 

He questions the viability of the current economic trajectory and suggests that a strong manufacturing sector could be the key to Kenya's economic alignment with its goals. 

Mwanzia also critiques the reliance on tourism for foreign currency, proposing a more organized sector with forward-looking policies.

Challenges of Diaspora Job Creation

Regarding the government's initiative to create jobs for Kenyans in the diaspora, Mwanzia deems it insufficient, citing potential economic shocks, language barriers, and the drain of manpower from the country. 

He questions the viability of low-paying menial jobs in foreign countries, emphasizing the need for someone to take charge of the economy to address multiple symptoms, including the depreciating KES.

Root Causes of the Shilling's Decline and Legislative Considerations

The news explores the historical failures of successive Kenyan governments to establish a robust local manufacturing sector, contributing to a trade imbalance and a lack of food security. 

The burden of over 10 trillion in debt without steady revenue streams further exacerbates the country's economic challenges.

Blame Game and CBK Response

The blame game extends to the Central Bank, with accusations against former Governor Dr. Patrick Njoroge for artificially propping up the KES against the USD. 

Current CBK Governor Dr. Kamau Thugge has faced scrutiny from a parliamentary committee, attributing the KES decline to high USD demand during certain periods. 

The true valuation of the KES against the dollar remains a pressing question, with concerns about factors such as divestments from the Nairobi bourse due to unfavorable policies.

Call for Legislative Review

In response to the economic turmoil, there is a call for Parliament to reevaluate laws regarding the legal use of alternative currencies in Kenya. 

Many Kenyans advocate for the ability to transact in USD, citing the need to hedge against personal losses caused by the depreciating KES. 

Questions arise about potential changes to tax laws requiring statutory deductions to be made in Kenyan shillings, allowing the use of USD locally. 

The news concludes with the assertion that Kenyans find themselves at a disadvantage as they grapple with the multifaceted economic challenges resulting from the sliding shilling.