WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-09-21 Time: 13:00:03 Posted By: News Poster
By Geoffrey Irungu
The Central Bank of Kenya’s ferocious appetite for hard currency has led to the depreciation of the Kenya shilling in the past few months.
The monetary authority has bought foreign currency in large amounts – sometimes hundreds of millions of shillings on a single day – such as a consignment of Sh650 million two weeks ago.
The weak shilling has been a boon to exporters whose nominal income increases when the currency weakens, but a bane for importers who have had to pay more to import commodities such as oil, raw materials, machinery and medicines.
Currency dealers reckon the currency would be stronger than it is now without the intervention of the Central Bank, which argues that its intervention is meant to dampen effects of speculative tendencies and boost import cover reserves.
But it is not lost on observers that in the 2010/11 budget read in June, Finance Minister Uhuru Kenyatta directed the bank to pursue an exchange rate favourable to Kenyan exports.
The minister said the CBK would maintain “a competitive exchange rate that will promote Kenya’s exports.”
Research paper
A recent research paper written by, among others, the Governor of the CBK, Prof Njuguna Ndung’u, appears to argue in favour of a weak currency pointing out that Kenyan exports, especially horticulture, tourism and manufactured goods, increase with a depreciated currency even in the short run.
Some experts, however, differ with this policy saying that export promotion through currency depreciation adds to the cost of doing business – loading onto other more obvious costs such as corruption, cumbersome licensing procedures and poor infrastructure.
“In my view, there isn’t anywhere in Africa where competitiveness is about the exchange rate alone. A number of other things can help or hinder competitiveness including the state of a country’s infrastructure, the ease of doing business. These factors are often more important than the exchange rate, and – occasionally are easier to fix,” said Razia Khan, the head of Africa Research at Standard Chartered Plc.
Forex purchases, she added, would be a tool of government policy where there was a perceived need to help the economy by adding liquidity, or a build up forex reserves preventing the Kenyan shilling from strengthening too much.
Even then, she said, that was unlikely to be a major consideration in times of volatility, such as that the shilling has witnessed in recent weeks.
Mr Kenyatta appears to have given the directive to encourage policies that would revive the economy from the slow growth in the past two years.
It is possible that the policy of promoting a depreciated shilling could be relaxed once economic growth picks up.
The CBK did not respond to our request for comments on this story.
The build up of foreign currency has been boosted by increased exports including tourism receipts that grew by 17 per cent in the first half of the year compared to the same half of 2009.
The current account balance reflected in the difference between exports and imports was at a lower deficit of $792 million by the year to April , 2010, compared to a huge $2,185 million in the year to April, 2009- – showing it had more than halved.
The current surge in oil prices come when consumption of the commodity imported about a month ago, is beginning to go on sale locally.
The period of buying the oil coincides with the period when some forex dealers began to express reservations about the movements of the local currency, saying that it may be artificially weak.
“We believe the current CBK policy is biased towards exports and this will help improve the country’s trading position to where the deficit will range between three and five per cent of GDP over the next few months,” said research analysts at Dyer & Blair Investment Bank.
The Permanent Secretary in the Ministry of Energy, Mr Patrick Nyoike, however, said the increase in prices was far in excess of the appreciation of the dollar in the recent past.
Other analysts say that improving Kenyan exports was not just about the currency.
It is also about improving the business climate. According to the World Bank’s latest economic update, in 2010 Kenya fell from position 84 in the world to 95 out of 183 countries on the Doing Business ranking.
This deterioration is seen in terms of its contribution to the high costs of goods which in turn makes them uncompetitive at the world markets.
For example, Kenya energy costs are high relative to its strategic competitors even within the Comesa region.
Kenya’s electricity cost is four times that of Egypt, which is a member of Comesa.
The port of Mombasa is considered Kenya’s most important infrastructure asset but has largely been inefficient and this could only get worse with the countries in the region expected to grow at a pace of at least five per cent of GDP every year.
World Bank reckons that one of the single most important items in increasing exports is addressing the bottlenecks at the port.
Forex dealers have kept a close watch on purchase of hard currency by the CBK and their feeling is that the shilling should have appreciated rather than depreciated in the past few months given prevailing economic fundamentals, including increasing exports as well as improvement on the balance of payment.
With research showing that exchange rate depreciation has a major impact on returns to exports and therefore to buyers of local currency, players in the foreign exchange market are normally sensitive to the changes in the rates.
The research by Prof Ndung’u and others, tilted Analysis of Kenya’s Export Performance: An Empirical Evaluation, says in part: “…in general, real exchange rate has a profound influence on export performance. The supply response to price incentive (real exchange rate depreciation) for exports of goods and services is significant.”
They noted for example that depreciation of the general real exchange rate positively influence returns from coffee and tea in the long term but not in the short term.
Other Kenyan crops that respond more quickly to international markets, however, are easily influenced by short-run changes in exchange rates.
“Unlike in the case of coffee and tea, the impact of a current depreciation in real exchange rate is quite significant. Intuitively, this makes a lot of sense considering the components of ‘other exports’ – tourism, horticulture and manufacturing, that have the potential to adjust much faster to price incentives in the short run compared to perennial crops,” said the report.
The results of the study are partially corroborated by another done in 2007 by Mr Moses Kiptui, who was then an assistant director of research at the CBK, and which was titled Does the Exchange Rate Matter for Kenya’s Exports?
Mr Kiptui concluded: “The existence of long-run relationships is established for coffee, tea and horticulture exports but rejected for manufactured goods exports. The results indicate that the real exchange rate has positive effects in the short-run but the effects are found to be statistically insignificant.”
Original date published: 21 September 2010
Source: http://allafrica.com/stories/201009210549.html?viewall=1