Bob Mathenge is an importer of second-hand clothes. He says the depreciating shilling has hit his business badly, with very slow and low sales and the inability to purchase the same quality and quantity of merchandise from his global sources. He says not only is the shilling to the USD hit over KES.145 to 1$ but that the shilling to the Euro exchange rate had breached the KES149 to 1Euro.

Bob says that, in turn, his business is struggling with rent payment for their premises and catering for the wages of the staff who work with them. Being that Bob works and sells clothes in mainly non-formal areas, he has noticed his business struggle to sell. Despite employing many marketing gimmicks and giving offers that make his goods affordable, nothing seems to be working!

From 15th March 2022 to April 2022, the fuel cost in Nairobi was Ksh134.72 for petrol, Ksh115.6 for diesel, and Ksh103.54 for diesel kerosene. A year later, households in Nairobi are grappling with Ksh179.32 for petrol, Ksh162.0 for diesel, and Ksh145.94 for kerosene due to a combination of many economic factors. Lately, however, this is mainly due to the Kenya Shilling sliding down the depreciation path against major currencies. Today, the media reported the Kenya Shilling selling at over 145 to a unit of the dollar (USD) despite the government pinning its official exchange rate at 129.7618. the shilling is no longer within the herding of officialdom, like a river that has broken its banks, it is way beyond the “officially” desired threshold.

In post Covid-19 pandemic period, high food and energy costs took their toll on Kenya’s economy due to Russia’s war with Ukraine; however, no one foresaw a weakening shilling piling pressure on the already tough economic environment. A sliding shilling has made it very expensive to import vital commodities using major hard currencies like the (USD) dollar and the euro.

In Kenya, a strong dollar compels business people to use more shillings to buy the same quantity of goods, which is passed on to consumers. This higher price means they are unintentionally importing inflation along with their cooking oil, staple grains, and petroleum products. A good part of Kenya’s debt is also dollar-denominated, which they have to pay back in dollars, pilling more misery to an already distressed financial situation.

Economist Churchill Ogutu of IC Group says that Kenya, a net importer, will be gravely affected by the downward spiral of the Kenya Shilling.  Kenya needs dollar liquidity each month to offset transactions for raw materials, especially oil energy, as this is how global supply channels work.

Churchill points out that the most affected person by the downward spiral of the Kenya shilling will be the common “mwananchi” as the supply chain will keep passing down the added costs of a weaker shilling until it reaches the consumer who cannot pass it away or anywhere.

He also intimated that the fate of the shilling was long in coming as it was shielded for a long time from market forces, which is its waterloo. Kenyans are suffering the slow side and undeclared devaluation of the currency. The mwananchi is suffering from a scenario akin to a “managed devaluation” of the currency.

Every free-floating currency in the world is usually subject to market forces where it is in use, and ultimately this determines its value vis-vis the world’s main currencies. Churchill says the shilling had long been shielded from free market-dictated movements. This has had the effect of simply delaying the inevitable, finding its footing against the major currencies. He says as commodity prices keep on climbing, the pain on consumers will be real, and this will reflect soon enough in dropping demand for non-essential goods and services, which in turn will hit many firms with low revenues and, of course, low resultant taxes. For firms that cannot transfer these costs fast enough, they look at grave times ahead, even dissolution or relocation are present factors. Many consumers will only look at necessities and nothing more.

Churchill says one of the options for the government would be to offer subsidies for basic products whose costs might spiral out of control but going by the disdain Kenya Kwanza government has for subsidies, there could be minimal assistance coming from that direction. The government might also choose to manage the Kenya Shilling as attempted before, which might come up with mixed results.

The consumers in Kenya should brace themselves for tough times ahead as many more commodities will shoot up to reflect the real value of the depreciating shilling. Consumers will find it rough when purchasing from food to petroleum, clothes, farm inputs, machinery, phones, and electronic devices until the economy lowers its importation bill considerably, stocks a healthy dollar reserve, or becomes a net exporter of goods and services.

The dollar’s strength has treated the rest of the world to untold woes. The dollar is the de facto currency for global trade, and its steep rise is squeezing the life out of countries like Kenya that rely heavily on imports and borrow in dollars to fund their capital-intensive ventures.

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