NAIROBI: The dropping Kenya shilling trend is being spurred by Kenya’s widening current account deficit which in the absence of billions of tourism earnings has widened to over a trillion shillings already in 2014 over the previous year and that scissor is opening still further as a result of yet less tourism income in the first quarter of 2015.
The last time there was a run on the Kenya shilling was from mid to late 2011 when in November that year the local currency hit a record low of 107 KShs versus 1 US dollar before during the following year clawing its way back into the high to mid-80 range.
While Kenya’s Central Bank has over the past few months poured over 50 billion Kenya shillings worth of US dollars into the market to stem the slide of the currency, this was clearly to no avail as the shilling yesterday fell to a three-year low crossing the psychologically important threshold of 95 KShs versus 1 US dollar. In fact, three major interventions in the market in April were clearly not enough to arrest the slide of the local currency versus major international currencies.
“The bank has not much left in its arsenal to arrest the slide, only to slow it down. The fundamentals are simple – we have a rising import bill, and billions of shillings have been wiped off our tourism earnings because of insecurity and because of the UK’s frontal attack on our country, basically telling the world that the coast region is a war zone. You know it is not true, we know it is not true, but it fits perfectly into the world’s perception of Africa.
Last year, as if anti-travel advisories were not enough, much of the developed world developed a phobia about ebola and tourist arrivals across the board in sub-Saharan Africa took a hit. Ebola was further away from East Africa than from Europe; they had cases of Ebola, America even, but not one in East Africa. Still we were hit by the scare which made the round and which was nurtured by Western media.
“Tourism arrivals for the first quarter of this year are again way down from last year and the year before, and the lack of tourism income now shows in the value of our shilling. Ordinary Kenyans will now pay the price for the government’s long silence and inaction towards our sector, because the rise of the dollar value here will drive inflation, every single item we import will cost us more and more” contributed a regular commentator from Nairobi in this latest challenge Kenya is facing.
Inflation has risen over the 7 percent margin last month according to statistics seen and the impact of the sliding shilling is bound to be reflected in the May data as and when they become available. Also affected will be Kenya’s major infrastructure projects for which imports of building materials will also rise, affecting the final cost of these mega projects like LAPSSET, Project Greenfield – the expansion of Jomo Kenyatta International Airport – and the Standard Gauge Railway from Mombasa to the Ugandan border.
Financial analysts in fact fear that should oil prices begin to return towards the 100 US dollar a barrel margin, that Kenya and Eastern Africa will be in for an economic shock of sorts, triggering further inflationary pressures on the regional economies.
This development will no doubt also bring back and revitalize discussions on the issue of a common, and less vulnerable currency, for the East African Community to the top of the agenda. Region-wide talk was intense until a year ago, but has since gone notably quiet as the preparations were moved from the headlines into the committee rooms of the five countries’ central banks.
There was also speculation that the emergence of the Northern Corridor Integration Project alliance, commonly referred to as the Coalition of the Willing, has put a damper of the common currency enthusiasm among the non-coalition members.
There is now a common consensus among Kenya’s tourism fraternity that unless fundamental change takes place in the hearts and minds of the key decision-makers and drastic if not dramatic action is taken, that 2015, as was 2014 already, might be another lost year for the industry. Tens of thousands of jobs were lost since the downturn started in 2013, dozens of resorts and hotels have closed down and safari companies have had to downsize, sell off vehicles, freeze salaries, and cut out bonuses across the board for lack of clients and cash flow.
