Another group trooped to the Governor of the Central Bank, lamenting about the strength of the Kenya shilling against the dollar, and its negative impact on exports – asking for intervention, or exchange rate controls to weaken the shilling.
But is it possible and how? According to economist Dr. David Ndii, the Central Bank is largely unable to control currency and inflation rates. Inflation because a large part of the economy is informal (and unbanked), and the shilling because of remittances.
Remittances grew from ¼ to almost 1/3 of export earnings and grew by 43% compared to exports which grew by 13% from 2005 to 2006.
So unless authorities crack down on money transfers, or asks Kenyans in the diaspora to channel their funds through more productive avenues and investments, this is likely to continue. And with Equity bank and Safaricom poised to enter the international money transfer business, the reach of the diaspora to rural Kenya is about to take another leap forward.
Ultimately we all hope the strong shilling can lead to a lower fuel bill for the country ad petroleum prices impact so many aspects of the economy including the cost of production for exporters.
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International jobs can be viewed at the Kenya Ministry of Foreign Affairs website
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TNT international: sales account manager, sales administrator, IS administrator. Apply to
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World Bank young professionals program d/l is 15/7
@Banks
The pressure on the Ksh will ease once the government starts to spend parts of the Kshs 600 billion+ budget
Kenyan consumers will use most of this money to buy foreign goods such as cars, tvs and computer
oil/petroleum importers are happy with a stronger shilling. But you can never count on these guys to reflect this in their pricing.
All in all, a correction will def take place on nearing the elections.
I just don’t get this whole shilling discussion.
Isn’t kenya a net importer?
The only people feeling pressure are exporters. And they should have seen this comming and accommodated for it in pricing and currency hedging. I mean that is just international business 101.
Banks
Since the $1 dropped to Ksh. 66 from Ksh 73 about 1 year ago, how has the price of imported stuff been affected?
As otero says, seems to me that the local consumer never really sees an effect in these drops. Who has an idea how this can happen? How come the Kenya econmomy does not follow well understood laws?
I have no problem with the strengthening of the Kenya Shilling…the British pound was once 20 bob…there is lots of ground to make up.
The Kenya Ministry of Foreign Affairs website goes to a blank page.
To quote one of my favorite TV characters: “What? Are we surprised by this?”
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In economic theory, CBK could intervene via OMO where it buys up foreign currency-waste of time. Or it could reduce interest rates driving inflation higher or could institute exchange controls possibly leading to another Goldenberg. Ways out of this would be to import more thus generating demand for fx-but we want a strong exporting economy so we are a catch-22 situation.
most currencies have strengthened against the dollar anyway so i think this should balance our against export partners. though export are priced in US dollars the conversion to local currencies should reflect the gain against the dollar.
the biggest issue perhaps is cost labor in dollar terms has gone. literally it means that kenyan workers have gotten a raise – without necearily increasing productivity.
Also the gains off the dollar are being offset by poor infrastructure in a world of strong currencies and low trade barriers infrastructure and productivity are key.
speaking of which kibaki is one lucky president – reaaly if u analyze it there has been no fundamnetal economic policy change between him and MOI just that the economy is being carried by global trends.
hi Bankelele,
Quick question: any links with hard numbers on the remittances numbers that you mentioned?
De-link the dollar and link onto the euro?
alexcia: About half of development funds budgeted are never spent.
Otero: True. Fuel prices are up over 10% this year
don: there’s some hedging/futures contracts in the flower export business
mwalimu: Not seen anything cheaper, as fuel prices have been rising
ncrwcc: Not likely though it would be something to see. The US$ was 7 bob!
E-Nyce: Minsitry site is back up though I haven’t seen the jobs
– The $ is still the preferred currency for business & travel in this part of Africa. Euro needs some marketing for wider acceptance
Global Career Company: best wishes, you can e-mail such info direct
MainaT: Intervenetion will have to involve forex bureaus, western union and other remittance co’s
Steve: Dr. Ndii mentioned that net remittance rose from $1,264m in 2005 to $1,812m in ’06 while exports rose from $5,458m to $6,167m
Banks.. are the futures traded in the market? Where are they traded?
What ever happened to OTC? or did it die under the safaricom IPO shadow?
Almost $2bn in remittances.
Wow.
This now begins to make me wonder how I can make some money out of this whole remittances thing …
Thanks for the taking the time to respond banks.
– Steve