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.
