Wealthy Kenyans and rich companies stockpiled a record Sh137.38 billion in dollars over the 11 months to February as they sought safety for their savings in the wake of the coronavirus economic fallout.
Central Bank of Kenya (CBK) data shows that foreign currency bank deposits held by Kenyans hit a historic high of Sh779.53 billion in February, up from Sh625.9 billion in March last year -- the largest annual jump.
The additional Sh137.38 billion foreign currency savings is nearly three times the Sh49 billion extra deposits in dollars, euros and the British pound a year earlier.
This is an indication that the wealthy are protecting their value and hedging rather than seeking new areas in which to invest their fortunes.
The performance of Kenya’s economy in 2020 was hit by the effects of the Covid-19 pandemic and restrictions that were put in place to contain its spread, forcing many businesses to close and send their employees home or subject those retained to pay cuts.
Analysts are of the view that the rush to buy dollars is part of a global trend in response to the coronavirus pandemic, which has sent investors to the safety of the greenback.
Senior associate for debt and equity at AIB-AXYS Africa Kenneth Minjire said the weakening of the shilling had strengthened the stature of the dollar as individual savers and companies seek the greenback to protect their money.
“The confidence in local currency is even weaker than it was about a year ago especially looking at nuances such as growing debt level,” said Mr Minjire.
The CBK usually converts the foreign currency deposits into shillings when reporting.
The shilling has weakened 5.73 percent against the dollar when comparing the average for March last year and February trading.
This signals that the weakening of the shilling had little impact on swelling the foreign currency deposits.
The CBK said earlier that bankers and firms had informed it via a poll that investors were hoarding dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.
The shilling weakened to a low of Sh111.59 to the dollar on December 17 compared to an average of 101.87 in February
A reduced inflow of hard currencies after the coronavirus outbreak hurt the shilling due to low inflows from farm exports and tourism.
The local currency has since strengthened to Sh107.80 mostly because of little dollar demand in the market from importers.
A slowdown in business activities and the uncertain future caused by the virus have forced many companies and rich investors to hold onto cash, leading to a pile-up in bank accounts.
Low returns from a bearish stock market and a slump in real estate have also seen the rich opt to keep cash in banks and tap interest returns that stood at 6.46 percent in February.
“It now pushes banks to try and find more creative ways of employing these funds for a return given the tight rules around dollar lending,” said Mr Minjire.
While companies see the money in banks as a buffer against hard times, it has long riled investors, who say executives should invest it for growth or return it to shareholders.
The dollar has become the currency of choice for worried investors because the US economy is seen as the most sheltered should the virus damage the global economy.
Kenya’s economy has been picking up after likely posting a slight contraction of 0.1 percent in 2020, the International Monetary Fund (IMF) said.
The IMF said it forecast a sharp swing to growth of 7.6 percent in 2021 and 5.7 percent in 2022, but said Kenya continued to face challenges in the return to durable growth, and its past gains in poverty reduction had been reversed.