FOREX shortages will soften but not disappear altogether as the currency depreciates
Firms should consider offering financial support to local partners struggling to pay invoices in hard currency on time, for example, by establishing a regular payment plan or by offering flexible payment terms. Multinationals facing greater price sensitivity, softer sentiment, and changing behavior among customers should review their pricing strategies. Adapting product portfolios to focus on the most profitable and least price-sensitive customer segments will help insulate companies from shilling volatility. Raising marketing spending and—where relevant—offering new value-added services will help firms defend market share in an increasingly competitive environment. Meanwhile, multinationals should provide support to local partners facing operational disruption during periods of social unrest over the coming months.
Overview
- After losing an average of just 0.6% of its value against the dollar each month in 2022, the shilling’s depreciation quickened in Q1 2023 to an average of 4% monthly in January and February, and 6% in March.
- Severe foreign currency shortages emerged in 2022, caused by the central bank’s reluctance to allow the currency to depreciate despite current account pressures.
- In recent weeks, the currency’s volatility has coincided with widespread—and at times commercially disruptive—social unrest led by opposition politicians in response to the rising cost of living and alleged fraud during the August 2022 election.
Our View
The shilling will continue losing value in the coming months, ending the year around 145 per dollar at the official rate. Social unrest is unlikely to fundamentally alter the currency’s outlook, provided that political tensions ease by early May. Rather, the shilling’s trajectory will largely be driven by long-standing economic pressures, including a deteriorating trade balance amid high prices for imports, rising interest rates in the US, and elevated investor anxiety toward Kenya given the government’s deteriorating fiscal position. FOREX shortages will ease as the shilling depreciates, but unfettered access to hard currency will elude the private sector for the rest of 2023.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.