Monday, October 26, 2015


The Kenyan shilling, just like our own has depreciated sharply against the dollar for more or less the same reasons – a strengthening US dollar against other currencies and falling commodity prices.

In addition Kenya, just like us, are in the throes of an ambitious infrastructure development process to fill the gaps left by years of neglect of their infrastructure and build more to catch up with its growing population’s needs.

But Kenya, unlike us, last year went to debt markets and borrowed $2b to finance its road and rail  and also it was hoped, would make it unnecessary to continue local borrowings. By borrowing locally the Kenya government was forcing borrowing rates for the private sector to rise putting the brakes on economic growth.

However Kenya’s Eurobond was taken out when the dollar was trading at about Kshs88 but is now trading at about Kshs103.  So recent interest payments – they are paid out at the end of the quarter, put a huge strain on the Kenyan treasury to the point that last week the Kenyan press was reporting the government had run out of money to carry out its programs.

Now the Kenyan government is looking to borrow from the domestic markets as a stop gap measure as it scrambles to refinance its Eurobond and hopefully manage some relief that way.

Borrowing from the international markets is not a bad thing in itself, unfortunately it can impose huge exchange risks on an economy that was previously thought to be sound and bring down to its knees.

It has happened before in our recent memory. In the 1990s the south east Asian countries gorged themselves on cheap foreign credit, a lot of it went into real estate investments. When the bubble burst and eth developers could not honour their foreign obligations their currencies collapsed causing a lot of social unrest.

The truth is, as in our personal lives it is much easier to borrow than build up your own independent reserves.

Kenya was shut out by the international lenders at the start of the 1990s and in response built the most sophisticated local resource mobilisation mechanism in the region. So much so that when they were brought back in from the cold after the 2002 polls, they were confident enough to negotiate on more equal footing.

The conspiracy theorists suggest that that kind of economic independence, however limited, was not welcome and Kenya had to be put back in its place, hence their current predicament.

As good a theory as any.

"The larger lesson for us in Uganda, with our own love-hate relationship with the donor community is that there is an urgent need to build our own reserves, not only as matter of economic but also security interest...

This week the National Social Security Fund (NSSF) announced that its strategic target was to grow to sh20trillion from its current sh5.8 trillion in assets under management by 2025. But NSSF would not be the giant institution it is today were it not for government legislation to ensure workers pay a fraction of their salaries into the fund.

Invariably the issue of mobilising resources will come at some cost to our comfort and deepen the frowns in some people’s brows, but those are the kind of farsighted decisions we are going to have to make for our ambition to achieve middle income status as a country to be more than a pipe dream.

Former Chinese leader Mao Tse Tung was determined to make China a nuclear power, but was even more determined that his country not become beholden to the Russians or Americans in chasing this ambition.

He paid for the technology in grain even when there was great famine stalking the nation. It is estimated that up to 30 million of his countrymen died in the pursuit of this ambition.

Not the best of examples, but an illustration of the lengths people have gone before us to become truly self sufficient.


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