Foreign Investors shun Kenya Over Dollar shortage Crisis

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Foreign investors have stayed away from making local investments over jitters in repatriating gains out of the country, a situation brought about by a long simmering dollar shortage crisis.

Analysts at EFG Hermes notes that portfolio inflows have returned to emerging and frontier markets apart from Kenya and Nigeria where markets have exhibited difficulties in foreign exchange access.

Of the Ksh.18.4 billion ($150 million) in inflows to frontier markets in November, none of the flows were to Kenya or Nigeria.

“There is difficulty in foreign investors getting their money out. Foreign exchange access became a problem in 2022. Foreigners are not putting their money in if they can’t get it out,” noted EFG Hermes Head of Macro Strategy Simon Kitchen.

Foreign investors at the Nairobi Securities Exchange (NSE) remained net sellers for the month of November at Ksh.895.9 million ($7.3 million) taking the year to date selling position to Ksh.23.1 billion ($187.9 million).

According to Mr. Kitchen the Shilling has been wrongly priced set in motion a house of cards that has translated in the dollar shortage crisis.

Earlier this year, traders especially manufacturers narrated difficulties in accessing dollars with some such as EABL taking a dollar denominated loan to ensure access to forex.

“The first reason of why there is a problem is that the price is wrong. Supply does not meet demand at official rates. The price for currency needs to change,” added Mr. Kitchen.

EFG Hermes Kenya Head of Equities Muathi Kilonzo meanwhile traces the dollar shortage crisis to the collapse of the interbank FX market.

“The CBK has for long time had its eye on the FX interbank market to control speculation. The interbank FX market is broken creating the perception that there is no forex.

According to the EFG Hermes analysts, the Shilling ought to trade at between Ksh.125 and Ksh.125 but the CBK quoted the local unit at Ksh.122.73 at the close of trading on Wednesday.

The CBK has on its part disputed the dollar shortage crisis while insisting the maintenance of a flexible exchange rate.

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