Address weaknesses in the economy and exchange rate will stabilise, argues banks

By Ben Kinyanjui

Mr Richard Etemesi might not have said what he thought about the committee and mangers of the economy but the message was clear to all. They were looking for the answers in the wrong quarters. KCB CEO Martin Oduour-Otieno. Major banks on the spotlight over weakening shilling last year

According to the banker, credit was too cheap last year and Kenyans took the opportunity to consume and consume loads of imported goodies that required huge volumes of foreign currency to buy. Even maize and sugar had to be imported in large quantities because we could not produce enough.

Even when the country could not literally afford to buy oil in May last year due to sharp increase in the commodity in the international market, motorist continued to fuel their cars as if that meant nothing to them. Most borrowed to fuel.

At that time few if any knew that foreign currency earned all the exports, including the manufacturing sector could not meet the oil import bill. Oil and most other imported goods like machinery are bought using the world majors like the US dollar, Euro and the Sterling Pound.

It was obvious that the huge import bill was weighing heavily on the foreign reserve at the Central Bank of Kenya (CBK) that is used to ensure there is enough foreign currency to meet the import bill for at least three months.

At that critical time, there was not even a mild warning from the ministry of Transport or even Finance that the high oil prices were causing havoc to the economy.

Equity Bank CEO managing director Mr James Mwangi in a rare outburst wondered why nobody raised alarm that Kenyans needed to use the oil prudently because the country could not afford it.

Back to the Adan Keynan led parliamentary committee investigating the sharp fall of shilling in the better half of last year where the shilling hit a low of Sh107 to the dollar in November.

Before the committee on Monday Mr Etemesi, CEO of Standard Chartered Bank said Kenyans had lived on that cheap credit for so long and it was not sustainable.

According to the banker, the economy has thrived on consuming goods that it rarely produces hence putting pressure on the exchange rate as more dollars are required to import the goods.

The MPs claims that the banks instigated the depreciation, but chief executives of top commercial banks say they could not point out what exactly caused the weakening.

The committee ordered KCB, Equity, Co-operative and Barclays Bank to publish records of their earnings from foreign currency trade during the critical period of the shilling’s fall that was characterised by a shortage of foreign currency, especially the US dollar.

Kisumu Town East MP Shakeel Ahmed Shabbir, who is a member of the select committee, claimed banks borrowed billions of shillings from CBK with which they bought US dollars, fostered an artificial shortage, then speculated with the foreign currency, sparking depreciation and inflation.

Ol Kalou MP Erastus Mureithi, a former managing director of Co-operative Bank, said there had been reports that commercial banks "squeezed all their foreign currency to speculate on it," which the bankers were not addressing and accused them of evading the real source of the problem.

According to reports filed at the Nairobi Securities Exchange and CBK, the largest earner from foreign currency trade between March and September last year was Barclays (Sh2.1 billion) followed by Citibank (Sh1.75 billion), StanChart (Sh1.68 billion), KCB (Sh1.3 billion) while CFC Stanbic, which had an income of Sh984 million was fifth.

When Mr Mwangi, appeared before the committee a fortnight ago, he alleged that 26 major global institutions and brands had relocated to Kenya from South Africa and other countries putting a strain on dollar demand.

He also argued that in recent years, a construction boom had spurred foreign imports that required foreign currency at a time when the Kenyan government was spending 25 per cent of its earnings on fuel imports.

"Our total demand for US dollars went high by 16 per cent," Mwangi said.

Kenyans will be waiting anxiously for the parliamentary committee to table its report in parliament but probably acting Finance Minister Njeru Githae who is on a 100 days ‘honeymoon’ to learn the ropes at Treasury might have all the answers.

Shortly after being appointed acting minister, Githae wondered why the country could continue to import maize when there is enough land and farmers to grow the crop.

Probably the minister should impose total ban on maize imports. In that way local farmers will be motivated to grow more maize or Kenyans will diversify their eating habits.

The minister should also disagree openly with his predecessor Uhuru Kenyatta who wants the government to renege on earlier position to phase out 14 seater matatus on account they provide employment. They are uneconomical to run.