Foreign investors have stayed away from making local investments brought about by the dollar shortage crisis.
EFG Hermes, on-the-ground team of talented brokers and analysts that provide global institutional clients brokerage services, noted 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.
Traders last year, especially manufacturers, narrated difficulties in accessing dollars with some such as EABL taking a dollar denominated loan to ensure access to forex.
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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).
“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.
The CBK has on its part disputed the dollar shortage crisis while insisting on the maintenance of a flexible exchange rate.
“I want to underscore again that our exchange rate policy remains that we have a flexible exchange rate regime and that we intervene only to minimize volatility. Our exchange rate has served as well through the crisis as an automatic stabilizer. We are comfortable with the outcomes,” said CBK Governor Dr. Patrick Njoroge.
Head of Frontier Research and Lead Researcher at EFG Hermes suggested that the shilling be recalibrated, suggesting a devaluation would serve to correct the current dollar shortage crisis.
“There is no problem from CBK’s perspective but there is no doubt there is a problem from our investors. The CBK Governor should admit that from the other side there are problems happening and that is the reality, there is no make believe,” he said.