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Saturday, 30 October 2010 05:13

Kenyan Reserve Bank depressing Shilling?

Kenyan shilling may not survive currency war

The Central Bank of Kenya has been levied the accusation of deliberately weakening the value of her national currency shilling in order to make Kenyan agricultural products and tourism more attractive to foreign marketers. The Governor of Central Bank of Kenya (CBK) Njuguna Ndung’u said that the accusation has no basis and no legs to stand on.  Governor Njuguna Ndung’u denied that Kenya was pursuing a weaken currency policy, a paradigm that is becoming chic among ambitious exporting and emerging nations. Kenya may have a reason to depreciate the value of her shillings to counteract the effects of global recession and drums up demands for local products and services.

Kenya has a market economy with few government controlled industries. Most of her foreign currency generated is based on commodity export and attraction of tourists to the famous Kenya wildlife industry. The major export of Kenya is coffee together with tourism are the major sources of foreign revenues.  With the global recession and economic meltdown of many industrial countries, foreign donor nations have drastically cool-off on foreign aids. Therefore many developing nations who were the receivers of foreign aids have to buckle up and compete for attraction of capitals and revenues and Kenya is no exception.

Kenya is not a wealthy country and a large percentage of the population survived with less than one dollar a day. Kenya has a recorded GDP of $30.355 Billion (2008) which has grown significantly from $17.43 billion (2005).  With the relatively peaceful environment emerging from awful political violence a while ago, Kenya is poise for a growth but the world recession has made competition tense for export and attraction of foreign capital. Kenyan government has been intervening in the foreign exchange market and utilized the accumulated revenue from export to buy foreign currency and by so doing weaken its local currency.

“Currency dealers in commercial banks have in recent months pointed to the Central Bank’s intervening hand in the currency markets as the single biggest factor that has kept the shilling weak, even as increased foreign currency inflows from agricultural exports and a rebound in tourism dictated that the shilling should be strengthening.

The dealers have said that CBK appears to be inclined on maintaining a weak shilling by buying from the market dollars and other major world currencies in large quantities whenever the shilling has shown signs of gaining value. The Kenya shilling has weakened from Sh75.5 to the dollar to Sh80.60 since the start of the year — earning exporters more shillings per unit of their produce.”

The tendency to interven becomes inevitable to exporting countries that are afraid of having an appreciating and stronger currency which may depress export by making their products and services expensive to the international buyers. The danger of inflation looms with stronger currency and excessive liquidity in the market. In this case the central banks will moderately increase the benchmark interest rate and up the foreign reserve war chest to protect its currency from foreign predators. Kenya is doing the best she can to keep her head above water and compete in the aggressive international trade and market.

Governor (CBK) Njuguna Ndung’u Photo/Business Daily

“Kenya’s import bill has grown to Sh438 billion in the first half of 2010, up from Sh245 billion in 2005, compared to exports of Sh196 billion in the first half of this year and Sh120 billion in 2005.The Central Bank accumulates foreign currency reserves for use in paying government debt, paying for imports and supporting foreign missions.”

Governor Njuguna Ndung’u has stood by his words that his country was not pursuing the policy of depressing its currency. The downside is that Kenya does not have adequate resources to wave-off wealthy nations that are competing in globalized market with same interest and motivations. With her minimal economic strength and limited resources Kenya may not sustain a currency war when it becomes imminent.


Published in Archive
Thursday, 23 September 2010 02:50

Kenya and Constitutional Referendum

Beyond the Constitutional Referendum

From Mombasa to Nairobi, Kenyans came out in droves to pass and celebrate the new constitutional referendum, the most significant since the country attained her independence from Britain in 1963. The catalyst for the reform was the 2007–2008 Kenyan (political, economic, and humanitarian) crisis that erupted after incumbent PresidentMwai Kibaki was declared the winner of the presidential election. Supporters of Kibaki's opponent, Raila Odinga of the Orange Democratic Movement, alleged electoral manipulation. Both sides were subsequentlyguilty of instigating and participating in the crisis that later took ethnic and religious overtone and sentiments.


The referendum was successful with 68.55% of the country voting Yes and 31.45 voting No. The referendum was passed in peaceful nonviolent elections. Key highlights of the reform include:


· Reduction of  presidential powers

· Devolves power to regions

· Creates commission to manage public land

· Creates  House of Senate

· Recognises Kadhi (Muslim) courts

The most important question for Kenyans - what does the reform really meant for the daily life of the average citizen? While political freedom and civic exercises are good and well; the key to ending poverty, germinating peace and creating civil society in Kenya is to deliver the dividends of democratic dispensation. It must connote human development, dignity, and the right for self-determination. The major step, if not only solution for providing these benefits lies first and foremost in land reform.

Kenya like most previous settlement colonies struggles with land reform for two major reasons: The acquisition of land was done in an unjust and criminal manner and the return of some land was given to the ruling elite who subsequently took ownership of the land. The repossessed land was never returned back to the rightful owners, who were mostly peasants and subsistence farmers.  Land is more vital in Kenya than most other African countries because she is not blessed with the mineral wealth.

Kenya Land Alliance (an umbrella NGO) reports that more than a half of the arable land in the country is in the hands of only 20 percent of the 30 million Kenyans. It further reported that 13 percent of the population is absolutely landless, while 67 percent on average own less than an acre per person. How can a country achieve political and civic peace without correcting historical wrong and social injustice which has culminated to 60 percent poverty rate in Kenya?

Land reform is the path to peace and development in Kenya, and the single most important issue facing the country since independence.



Published in Gideon Nyan
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