Expatriates and multinational firms’ workers who are paid in dollars are the biggest winners from the weakening of the shilling against the US currency, enjoying significant gains when converting their earnings to buy goods and services in the local market.
The weaker shilling has inflated the salaries of those paid in the hard currency — mainly employees of international institutions such as the United Nations, diplomatic missions and multinationals—effectively shielding them from the high inflation that is straining household budgets of ordinary Kenyans.
In the past 12 months, the shilling has depreciated against the dollar by 8.7 percent, exchanging on Tuesday at an all-time low of 117.96 units to the greenback compared to 107.75 on June 28, 2021.
An expatriate on a monthly pay of $5,000 is, therefore, earning the equivalent of Sh589,800 today, compared to Sh538,750 a year ago, registering a gain of Sh51,050. This is before factoring in any other contractual pay increases they may have got in the period.
“Undoubtedly, the clear winners are those paid in dollars and are partly cushioned against spiralling prices for basic commodities,” said Churchill Ogutu, an economist at IC Asset Managers (Mauritius).
Currency exchange rate fluctuations have a major impact on international employees’ purchasing power, but the ones who stand to benefit most from the weakening local currency are those whose expenses are local, as opposed to those who remit their dollars back home to pay for items such as mortgages and school fees.
The exchange rate is also a factor when international organisations are negotiating pay with their employees, where a weaker shilling offers an opportunity to negotiate lower dollar salaries for incoming expatriates, who peg their pay demands on the prevailing cost of living in the country of posting.
On average, employees of external organisations and bodies earned Sh313,084 per month last year, up from Sh263,611 five years earlier, data from the Kenya National Bureau of Statistics Economic Survey shows.
This is nearly twice the average monthly wage of Sh173,506 paid to a worker in the financial services sector, which is the second best-remunerated segment in the private sector.
The number of foreigners coming to work in Kenya has, however, remained largely stable in recent years, with the government issuing and renewing a total of 19,305 work permits last year compared to 18,917 in 2017.
The stability in these numbers partly draws from the government’s decision in 2012 to bar permits for jobs that paid less than $2,000 (Sh235,920) per month, a move meant to keep foreigners from jobs that could be handled by locals.
Nairobi’s position as a regional economic and transportation hub also means that it attracts a larger number of foreign firms and expatriates compared to other regional cities.
The city is also fairly affordable for expatriates, ranking 18th among Africa’s major cities in a cost of living index published by British consultancy Mercer in 2021.
The city was found to be the 145th most expensive in the world for expatiates last year, improving from position 95 in 2020, reflecting the higher spending power dollar employees enjoyed due to the currency depreciation and tax relief measures that had been introduced during the Covid period.
In addition to those being paid in dollars, the recent weakening of the currency has also helped boost the value of remittances from abroad upon conversion to shillings.
Recipients have banked an average of $343.7 million (Sh40.5 billion) per month this year, which at last year’s rate would have been valued at Sh37 billion.
Exporters, who would ideally also expect a boost in earnings due to the depreciating shilling, have however been facing problems raising dollars in the local market to fund raw material imports, risking production shortfalls that blunt their ability to service overseas orders.
At the same time, those relying on imported inputs also face higher import costs, which eats at their exchange gains from sales.
“For exporters, the apparent gain is not clear cut and is further compounded by the uncertainty around dollar shortage,” said Mr Ogutu.
Flower and horticulture exporters to Europe, who are paid in euros, are also missing out on the gains because the shilling has gained 3.1 per cent against the euro in the past year to exchange at 124.79 units.
They also pay for imported inputs in dollars, meaning that they are suffering a double hit of exchange losses on both their income and expenditure columns.
