Economy

Rich Kenyans saved Sh2.1bn in dollars daily before polls

Money-dollars

Kenya’s foreign exchange reserves dropped by Sh44 billion ($365 million) in August to Sh886 billion ($7.38 billion) on debt repayments. FILE PHOTO | NMG

Well-off individuals and companies banked a record Sh63 billion more in dollar accounts in June as they searched for safety for the investments ahead of this week’s elections.

Central Bank of Kenya (CBK) data shows that foreign currency bank deposits held hit a historic high of Sh891.5 billion in June, up from Sh829.50 billion in May, making it the biggest monthly jump on record.

The Sh63 billion increase in dollar deposits, equivalent to Sh2.1 billion daily, is an indication that rich individuals and big companies sought a safe haven for their wealth in the wake of uncertainty linked to the polls.

The elections have largely been peaceful so far in a country where street protests and clashes usually only follow result announcements.

More than 1,200 people were killed after the 2007 elections, and more than 100 after the 2017 polls.

The Independent Electoral and Boundaries Commission (IEBC) had yet to announce who is leading in the nail-bitingly close race.

ALSO READ: BOSS TALK: Economy is healthy ahead of polls - CBK boss

The extra Sh63 billion in dollar deposits reflected a 7.6 percent increase and shows that the jump was not influenced by the strengthening of the greenback against the shilling, which shed 1.7 percent against the US currency in June.

“The jump is big so I would not attribute it to the weakening of the shilling but rather hard currency conversions as we moved towards the elections with the risk of a protracted election in mind like was witnessed in 2017,” said Churchill Ogutu - Economist IC Group.

“The jump also coincided with the Fed rate hike so some speculators may have been angling to make some gains from the strengthening of the dollar.”

The shilling has declined to an all-time low of 119.3 against the dollar having depreciated from Sh113.13 at the start of the year and Sh104.44 at the end of March 2020.

Demand for dollars locally has gone up significantly this year in line with surging imports following the full reopening of the economy, which has unleashed pent-up demand for both consumer and capital goods.

ALSO READ: Dollar trading margins hit Sh10 in currency woes

Global shocks sparked by Russia’s invasion of Ukraine have also increased the prices of imported commodities, driving up dollar demand.

The shilling has also suffered from a stronger dollar as the US Federal Reserve hiked interest rates by 0.75 percentage point for a second consecutive time in July to fight inflation.

This was the largest rate hike since 2000 of 0.5 percentage point.

The rate hikes tend to spark dollar outflows to safe havens in the developed world, increasing demand for the greenback and depressing the value of the local currency.

In times of trouble, all sorts of companies, banks and investors want to hold dollars. It is the world’s reserve currency and considered the safest.

The dollar has become the currency of choice for worried investors because the US economy is seen as the most sheltered in the event of a damage to the global economy.

Investors are known to hoard dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.

ALSO READ: What’s giving Kenyan CEOs sleepless nights

With the expected decline, those holding dollars would be able to later convert their money to shillings at a gain or would not suffer conversion losses when importing.

The frontrunners in Kenya’s presidential poll, opposition leader Raila Odinga and Deputy President William Ruto, were neck-and-neck based on results tabulated by media houses.

The IEBC said about 65 percent of registered voters turned out for the legislative, local and presidential elections -- a big drop from 2017 when voter participation was nearly 80 percent.

The final result from the IEBC is expected in days, although legally, it has up to a week.

[email protected]