Pain of falling shilling: Are Kenyans earning and billing in dollars safe?

Already, firms and their employees are openly broaching the prospect of dealing exclusively in the US Dollar (USD) to the exclusion of KES. 

It was recently reported that Kenya Power is thinking about implementing dollar-based billing for its power sales after posting a Ksh.3.19 billion annual loss courtesy of KES fluctuations. 

Demand for dollar salaries

Kenyan employees, especially those working for international organizations, NGOs, multinationals and many other categories are putting pressure for their employers to consider paying their salaries in USD to help them hedge against the losses occasioned by the dipping of the KES on their monthly earnings. This leaves many blue-chip firms recruiters scratching their heads on the way forward. 

They are at crossroads when they recruit and the desired employees request a contract with salary payment in USD as one of the conditions upon which they will accept an offer from these firms. Highly sought-after prospective employees are categorical that they need to ensure they will meet their financial obligations such as loan facilities on cars, mortgage, and school fees which are etching higher each time to cope with the weakening KES against the USD and other major international and regional currencies.  

Currently, several international organizations, NGO’s and multinational firms operating in Kenya pay their expatriate and senior Kenyan staff in either the Euro or USD, which some think is in breach of a gray provision in the Employment Act which requires employers to pay their employees in Kenyan currency. Refusal to comply with this law is a criminal offence which might open the organization to a fine of up to Ksh.100, 000 or imprisonment for two years or both. This law contains no exceptions under which salary can be paid in any other currency. But many international employers, in exercise of their international policies, cite the fact that the contracts for such employees are not local but rather international with the only difference being that they reside in Kenya. 

The employers and investors' pinch

Last week, when I took the Standard Gauge Railway (SGR) train from Mombasa back to Nairobi in the line of duty, I had a chance to meet with Mr James Mwanzia, who identifies as a finance expert and fin-tech entrepreneur.

No one else came to our compartment as the express train left the Miritini Station in Mombasa to begin the journey inland to Nairobi. Boredom must have gnawed at our weary bones because inevitably we struck up a conversation. 

After the initial awkward conversation, we spoke about the much-hyped El-Nino weather phenomenon in Kenya whose progress or lack thereof neither of us could unravel.  Cautiously we navigated past the weather into politics and ultimately to the economy. He intimated that he was once employed within the finance space in a blue-chip company but had since left to cut out a niche for himself in digital finance when fin-tech officially landed in Kenya. 

Mwanzia then set up a fin-tech firm which disburses quick digital loans to Small and Medium Enterprises (SMEs) over the last ten years. The initial run had been good and he had expanded as far off as Democratic Republic of Congo (DRC), South Sudan, Rwanda and next door in Uganda. Business had been good until Covid-19 struck, business went very low but they did not close down. 

Then in mid-2022, the shilling began behaving erratically, consistently backing down from the dollar. His firm had reorganized operations to be leaner, laying off some employees to cope with dwindling revenues. He said that the KES was spiralling down too fast against the USD, the Euro, the UK pound, the Ugandan Shilling and the Rwandan Franc. It was losing value in double digits against all these currencies.

Mwanzia declared that his primary purpose in going to Mombasa was to visit his core clients in the coastal city with the view to get their views on how to help their businesses better and to know if a good number of them were keen on dollar-denominated loan facilities for purposes of importation of raw material and other goods. He said the discussions were fruitful but not conclusive. 

Most of his clients were wary of the KES trajectory, and where and when the fall would stop. The fin-tech investor was scared that the shilling might wipe out his firm locally as profits kept diminishing from one month to the other over many months. His next best option was to stop operations in Kenya altogether and concentrate on the other markets he had built over the years but Kenya being home… this was turning out to be a tough call to make. He said he envied his friend from the coast who owns a house in the high-end suburb of Gigiri and lets it out in USD to ensure a steady value out of his investment. 

Mwanzia said he sympathized with the options open to the Central Bank of Kenya, one which was to use USD to mop out the KES from the market as, it was claimed was done under the previous administration’s watch, but at what cost? 

He was apprehensive concerning his firm’s employees in Kenya; they had requested in late 2023 to be paid in USD at the rate it traded to the KES in 2018 to ensure their salaries were not eroded but how would he do this without falling foul of the local laws? The businessman acknowledged that it made no sense for the employees to be paid in a fast-depreciating currency as it was akin to experiencing salary cuts each month yet the cost of living in Kenya was at a record high, and yet more fees, taxes and levies were being mooted.

Are taxes a solution? 

Mwanzia, who is also a finance officer opines that there is a need to widen the tax net to bring in many more taxpayers, to curtail wastage and corruption in government which is going on unabated despite random assurances from top officials, to mind matters of equity and equality in taxation to ensure greater compliance, to deliver services and goods for the common good to all citizens at affordable rates, to ensure accessibility and affordability of government services to all, and lastly to show citizens value for money taxed, all of which he felt was either not happening or too little was happening.

Mwanzia also gave his view on the much-touted tourism industry; it was not a good option to be relied on to bring the needed foreign currency into the country, however, a well-organized tourism sector with forward-looking policies could deliver much to the exchequer coffers. He felt tourism, as positioned now, was too vulnerable to local and international shocks such as government policies, terrorism, the first world economies and pandemics, among others, and hence his perception that a strong manufacturing sector was truly Kenya’s cure to its economic misalignment with its goals.  

When I asked his thoughts on the government's touted jobs for Kenyans in the diaspora, he thought it was well-intentioned but insufficient. He pointed out that the economic shocks the concept was likely to run into were enormous. These ranged from language barriers to the fluctuating amounts of money sent back to families in the country, but most worrying would be the drain of manpower away from the country which might not auger well for many sectors and certain industries. 

Furthermore, the kind of jobs which were being touted were low-paying menial jobs in those foreign countries, where the more people they sent the lower the pay packets would be. His parting shot was that someone had to take charge of the economy, the sliding shilling was just one of several symptoms of Kenya’s economic ill health; otherwise, the high cost of life we are witnessing now will bite several times over in months to come and with the result that there will be minimal demand for goods and services locally but even worse, imported goods.

What orchestrated the shilling fall 

This failure was orchestrated by successive governments in Kenya since independence. They collectively ignored, deliberately or not, to position a strong local manufacturing sector that would ensure a healthy balance of trade with foreign nations, a steady inflow of foreign currency and a movement away from the net-importer status that Kenya finds herself in today; even in matters as critical in as basic foodstuff; the country is not self-reliant and has no food security. 

Another deal breaker for the shilling’s renaissance is the over 10Tr of debt that was weighing on the country with no proper and steady streams of revenue to forestall the dreaded default status, in any case, the current administration was steadily adding foreign-denominated debt to the portfolio. Can one dig oneself of a deep hole by digging another hole? 

The blame game

The parliamentary committee concerned has summoned the CBK Governor Dr. Kamau Thugge on more than one occasion, but he has responded that there’s been too much demand for the USD at certain times within the past periods. Thugge also alleged that the immediate former governor of the CBK, Dr. Patrick Njoroge, artificially propped the KES against USD rather than let the forces of supply and demand play their role letting the KES find its true level against international currencies. 

Since he took over, mid-last year, he has not been explicit on how he will use policy instruments available to him to stem the slide of the KES and assure jittery investors some of whom have taken flight to neighbouring countries. However, the most pressing question Kenyans have today is; what is the true valuation of the KES against the dollar? Secondly is it true that other factors are driving it down? Such as rapid divestments from the Nairobi bourse owing to unfavourable policies or lack thereof? 

Legislation 

The time is now ripe for parliament to look afresh into laws regarding the legal use of alternative currencies in Kenya, if not for anything else but for the fact that a good number of Kenyans are saying they need to be allowed to transact in USD. They reason that they cannot face destitution tomorrow if they can hedge their personal losses in the wake of the depreciating KES. Should the issues on tax laws requiring statutory deductions to be made in Kenyan shillings be changed to allow the use of USD locally? Kenyans are the ones left holding the short end of the stick.