Weak Shilling: Reaping Where We Sow.

When the value of a country’s currency begins to lose its battle against world major currencies, panic immediately sets in. From local to international investors to industry players; the market generally prepares for a shake-up. This devaluation is a deliberate downward adjustment of the value of the currency against other currencies (investopedia.com).It is little wonder that there has, in the recent times, been cry over increased cost of living, unfavorable climate for doing business and all sorts of attempts to balance the market forces to counter the negative effects of a weak shilling in Kenya.
 

This kind of strait jacket economic scenario automatically translates to doom, more often than not. It is a restrictive economic space that unless interventions are made by the government or other monetary funding organizations, the balance might not be recovered. Recently the Central Bank of Kenya looked into the situation and discovered that the shilling’s weakening was due to the speculation by market players about the insufficiency of foreign exchange reserves. 

However, it would be interesting to note that countries like Japan have been said to strive to maintain their currency value at a lower figure than the US Dollar in order to remain competitive in terms of attracting foreign buyers of their products.

Close in on the Kenyan situation and reports of an ever weakening shilling and a consequent upset to commodity prices; have hit business headlines across the region. The food industry has particularly experienced skyrocketing price upsurges in agricultural inputs as well as staple food items such as sukumawiki and maize flour.Farmers are now hoarding their crops as the prices are unfavorable. All these are as a result of the diminishing power of the shilling. This is particularly bad news for a country that depends largely on agriculture as a source of government revenue.

The Kenya shilling has in the last couple of months lost ground to major international currencies such as the US Dollar, the British Pound and the EURO. To the dollar, it now exchanges at between Kshs80.00 and Kshs 85.00. While this might spell doom, it need not necessarily mean bad news. In fact it could work to the country’s advantage. A weak shilling is similar to slashing the prices of commodities produced locally which means they are likely to translate to more sales because prices are attractive to foreign buyers. Also, a weaker shilling means imported goods are likely to be expensive and therefore local consumers will gravitate towards the cheaper locally produced items. This will boost the local manufacturing industry substantially and at the same time discourage imports thereby reducing Kenya’s trade deficit, an imbalance of trade where we import more than we export.
 

In order for Kenya to maximize on its weakening shilling, perhaps what should be priority is to find ways to stabilize the export of agricultural products such as tea and coffee. If we have consistent surpluses then the international community will be attracted towards our currency as they can purchase commodities at a cheaper rate. This in turn increases the foreign exchange the government would reap from such imports and in effect a better, well fed population.

(06-0720)