Who’s Winning as the Kenya Shilling Loses? - Money Weekly

It is that time of the week again when we take a comprehensive look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly. 

To start with, Kenyans can take a brief sigh of relief as for the first time in a series of months, the Energy and Petroleum Regulatory Authority (EPRA) failed to raise fuel prices at the pump. 

The depreciation of the Kenyan Shilling is benefiting investors with diversified portfolios, as assets tied to foreign currencies, especially the US dollar, yield better returns. Investors in foreign stock exchanges, including in companies like MTN Uganda and Bank of Kigali, are experiencing increased dividends due to the Kenya Shilling's relative weakness. 

This is as Fitch Ratings warns that a significant depreciation in Kenya's exchange rate could exacerbate the country's debt servicing challenges, especially in the near term.

Money Weekly Highlights in Brief:

• Parliament has approved a Ksh200 billion increase in the country’s budget while miscellaneous expenditure tripled to Ksh60 million in the first three months of the 2023-24 financial year.
• KRA, on the other side, is pushing for tax compliance by Airbnb hosts through an exchange of information request to the Irish Tax Authority.
• The National Treasury is warning of a potential revenue loss of Ksh133.5 billion in the 2023/24 Financial Year due to lower-than-projected motor vehicle and fuel imports, as well as reduced sales of beer, spirits, and cosmetics. 
• The government is taking steps to ensure fair prices for coffee farmers by opening the coffee auction's direct market, both locally and internationally. Despite buyers making purchases in US dollars, farmers have traditionally been paid in Kenyan shillings, leading to disparities. 
• In the corporate world, Safaricom PLC announced robust profit growth for H1 2023. Equity Bank is moving into the overdraft facility market by introducing a real-time overdraft facility to compete with Safaricom’s Fuliza and Faraja products.

And, how much of your income do you save annually? The National Treasury is revealing that despite significant strides in financial inclusion, Kenya's savings rate remains low at about 12%, compared to a financial inclusion rate of 84% and financial access rate of 82.9%. 

Let’s dive in. 

Stabilisation Saves Consumers From Higher Fuel Prices

Kenyans breathed a brief relief on Tuesday after the government said it had opted to stabilise fuel prices for the November-December pricing cycle. 

The Energy and Petroleum Regulatory Authority (EPRA) retained the price of Super Petrol unchanged at Ksh217.36 per litre in Nairobi while the price of diesel and kerosene dropped by Ksh2 each to Ksh203.47 and Ksh203.06, respectively. 

EPRA says it has employed a stabilisation of Ksh12.01, Ksh19.82 and Ksh3.64 per litre for Super petrol, diesel and kerosene, respectively.

“The National Treasury has identified resources within the current resource envelope to compensate Oil Marketing Companies," said EPRA. 

Without stabilisation, the regulator said, the prices of Super petrol would have hit Ksh229.37 while those of diesel and kerosene would have hit Ksh223,29 and Ksh206.70, respectively. 

This EPRA attributed to a rise in landed prices for September fuel cargoes which the Authority based the pricing on. The landing price of super petrol rose by 2.81% to $827.75 (Ksh 125,776) per cubic metre while the price of diesel rose by 3.28% to $873.42 (Ksh 132,716) per cubic metre. However, the landing price of kerosene dropped by 6.31% to $813.9 (Ksh 123,672).

EPRA data, however, show international prices for October dropped. The October prices for super petrol dropped by 16.4% to 804.16 (Ksh 122.192), which is a five-month low, while the price of diesel fell by 6.6% to $839.26 (Ksh 127,526), and kerosene fell by 8% to $876.75 (Ksh 133,222). The prices of diesel and kerosene are at a three-month low.

The regulator also quoted the weakening shilling as a contributor to the high prices at the pump.

Further Drop in Shilling Value to hurt Kenya's Debt Service - Fitch

Fitch Ratings warns that a significant depreciation in Kenya's exchange rate could exacerbate the country's debt servicing challenges, especially in the near term. The Hong Kong-based credit rating agency expresses concern over the weakening shilling, which has fallen faster than anticipated, reaching 152.08 units against the US dollar. 

This trend raises worries about the country's external financing requirements, set to increase in the 2023/2024 Financial Year due to higher principal repayment burden driven by currency depreciation. President William Ruto acknowledges concerns about the debt, noting a commitment to pay $300 million in December as an initial instalment for debt due in June 2024.

The Kenya Shilling has depreciated by an average of 20% in the past 12 months against major international currencies, prompting the government to revise its repayment plan for the inaugural Eurobond of $2 billion taken in 2014. The country will now pay Ksh311.6 billion in June 2024, up from the initial Ksh240 billion, reflecting the impact of the weak shilling. 

Fitch Ratings emphasises the risk of fiscal slippage, particularly if the exchange rate further weakens, noting the wider-than-budgeted deficit for the 2023/24 Financial Year driven by increased debt service. 

While Kenya has sufficient reserves for near-term external debt obligations, using reserves to redeem the Eurobond could impact import cover and contribute to a potential downgrade in the country's rating.

Every day, Kenya's external debt stock and repayment costs surge by Ksh3.16 billion due to the Shilling's depreciation against the dollar, highlighting the country's vulnerability to foreign exchange fluctuations.

This comes at a time when data show depreciating currencies are driving up the cost of living in Sub-Saharan Africa. 

Currencies in Sub-Saharan Africa, including Nigeria, Kenya, and others, are experiencing significant depreciation, with the Naira and Kwanza (Angola) losing nearly 40% against the US dollar between December 2022 and September 2023. 

The fall in local currencies has resulted in higher food, transport, and commodity prices, impacting the cost of living. In Nigeria, frozen chicken prices have surged over 26% in three months, leading to reduced purchases by consumers. 

The depreciation is attributed to foreign exchange scarcity, reliance on imports, and a gap between supply and demand for foreign currencies. This trend is raising concerns about inflation and prompting government measures to stabilise currencies, such as injecting foreign exchange into the market and implementing policies like Egypt's barter agreement with Kenya.

Who is Winning as the Kenya Shilling Depreciates? 

The depreciation of the Kenyan shilling is benefiting investors with diversified portfolios, as assets tied to foreign currencies, especially the US dollar, yield better returns. 

Despite a decline in local equities and limited protection against inflation from local bonds, investments linked to the US dollar and regional currencies have shown resilience. Dollar money market funds have seen interest rates rise from 3.5% to six percent. 

Investors in foreign stock exchanges, including in companies like MTN Uganda and Bank of Kigali, are experiencing increased dividends due to the Kenya Shilling's relative weakness. 

Multinational Kenyan companies with regional operations are also benefiting from inflated dividends and assets in foreign subsidiaries. Despite the shilling's depreciation, local bonds and Treasury bills have become more attractive, offering returns approaching 18%, double the inflation rate of 6.9% in October.

Govt Revokes Gazette Notice Increasing ID Charges 

The government has reversed a Gazette Notice issued on November 7, 2023, that increased service charges for various government services, including application and renewal of passports, IDs, and birth certificates. 

A new gazette notice signed by Interior Cabinet Secretary Kithure Kindiki, now introduces revised charges set to take effect from January 1, 2024. The changes are, however, minimal when compared to the previous announcement. 

Notable adjustments include a reduction in the first-time National ID application fee to Ksh300 from Ksh1,000 and a decrease in the lost ID replacement fee to Ksh1,000 from the initial Ksh2,000. 

The other intended changes, however, remain unaffected.

Passport:

• Standard 34-page passport application fee increases to Ksh7,500 from Ksh4,500.
• 50-page ordinary passport application costs Ksh9,500, up from Ksh.6,000.
• 66-page ordinary passport application rises by Ksh5,000 to Ksh12,500.

Birth and Death Certificates:

• New birth certificate applications increase to Ksh200 from Ksh50.
• Death certificate application fees quadruple to Ksh200.

Special Considerations:

• The government will waive fees for National IDs for citizens demonstrating an inability to pay.

The State Department for Immigration and Citizen Services has been directed to conduct and complete public participation by December 10, 2023.

The High Court had already suspended the revoked notice even as a new petition against the fee revision was filed on Tuesday. 

Drop in Consumption of Fuel, Beer to Dent Tax Collections 

The National Treasury is warning of a potential revenue loss of Ksh133.5 billion in the 2023/24 Financial Year due to lower-than-projected motor vehicle and fuel imports, as well as reduced sales of beer, spirits, and cosmetics. 

Collections from “sin taxes” such as excise duty, fell short by Ksh29.47 billion in the financial year ended June 2023, mainly attributed to declines in oil volumes, motor vehicle imports, and domestic deliveries of excisable goods. 

The freeze on alcohol and cigarette tax hikes, implemented for the first time in five years, aims to prevent lower revenues and curb an increase in illicit trade. The Treasury has slightly increased the projected ordinary revenue for the current fiscal year to Ksh2.58 trillion - Ksh5 billion more than what it had budgeted.

Meanwhile, non-tax revenue, generated from government services and fines, has surged to a three-year high at Ksh29.69 billion in the first four months of the 2023/24 Financial Year. The 6.64% increase is the first since 2020, reflecting President William Ruto's directive to consolidate government service payments through a single Treasury-managed point. 

The consolidation move is aimed at enhancing liquidity management and minimising short-term borrowing. Key sources include transportation permits, land titling, and online services through e-Citizen portal. 

Non-tax inflows for July-October 2023 exceeded the Ksh25.11 billion target by 18.25%, with the Treasury targeting Sh75.33 billion for the fiscal year, a Ksh7 billion reduction from the 2022/23 Financial Year.

Development Spending Fades as Recurrent Budget Blooms

The National Assembly has approved a Ksh200 billion increase in the country’s budget to address rising interest payments and the depreciation of the shilling. 

The Budget and Appropriations Committee (BAC) allocated Ksh145 billion in Supplementary Budget I to pay interest on the public debt, raising the total budget for the 2023/24 financial year to Ksh3.95 trillion from Ksh3.74 trillion, which led to a shift in the budget deficit from 4.4% to 5.4% of GDP. 

Additional funds have been set aside for various purposes, including fertiliser subsidies, maize dryers, the National Cereals and Produce Board, the Coffee Cherry Fund, and education initiatives.

Meanwhile, a worrying apparent departure from austerity has been observed as miscellaneous expenditure tripled to Ksh60 million in the first three months of the 2023/24 Financial Year. 

This is a 290.3% increase (Ksh45 million) from the Ksh15 million spent over the same period in the 2022/23 Financial Year. Allowances and salaries for select state officials have also increased to a tune of Ksh10 million.

KRA Seeks Airbnb Transaction Data from 2021

The Kenya Revenue Authority is pushing for tax compliance by Airbnb hosts through an exchange of information request to the Irish Tax Authority. Airbnb Ireland will share this information with the KRA, impacting thousands of Kenyan hosts.

KRA wants operations data from 2021 to 2022 in order to assess the tax compliance of Airbnb hosts, with Airbnb hosts having been previously encouraged to pay the 2% Tourism Levy. This is in line with KRA’s ambitious revenue collection plans.

Speaking of revenue collection, the National Museums of Kenya (NMK) plans to double museum entry fees over the next three years to reduce reliance on government funding.

The NMK had not revised the fees in a decade. 

The revision will see regional visitors pay in dollars as locals continue paying in Kenya Shillings. The fee revision for the locals will be as follows: for those below the age of 18 years, they will pay Ksh150(1st year), Ksh200(2nd year), and Ksh200(3rd year), whereas the adults will pay Ksh300(1st year), Ksh350(2nd year) and Ksh400(3rd year).

Kenyans Poor Savers Despite Access to Financial Services - PS

Despite significant strides in financial inclusion, Kenya's savings rate remains low at about 12%, compared to a financial inclusion rate of 84% and financial access rate of 82.9%. 

National Treasury PS, Chris Kiptoo revealed this on Wednesday while adding that the highest savings rate that Kenya has ever achieved was about 15% “some few years back.”

He said this during the launch of the inaugural depositors’ insurance conference hosted by the Kenya Deposit Insurance Corporation (KDIC). 

Central Bank of Kenya deputy governor Susan Koech, who was also in attendance, highlighted the benefits of savings in enhancing lives and addressing daily challenges.

““We need to push the number further, and build a robust saving culture among Kenyans, considering the benefits that come with saving," she said.

KDIC launched a web-enabled training module to educate employees of financial institutions, aiming to foster deposit mobilisation and instil public confidence. 

The forum also addressed concerns about bank collapses, with Kiptoo noting the closure of 28 banks since the 1990s, led to scepticism among customers.

Safaricom Announces Ksh34.2bn Net Profit for H1, 2023

Safaricom PLC has announced a strong profit growth for H1 2023, with local business net income rising by 10.9% to Ksh41.6 billion. The net income for the overall group rose by 2.1 % to Ksh34.2 billion, excluding minority interest. 

This coming with a backdrop of a progressive reduction in pricing of its products and services. Since 2020, Safaricom has had a 65% reduction in data prices and a 44% reduction in outgoing call rates. Additionally, M-Pesa remains a core revenue contributor for the telco, contributing 42.1% of Safaricom's revenue.

Meanwhile, past mistakes that marred the leasing of Kenya Railways to Rift Valley Railways, leading to significant losses to Kenya Railways, haunt the port of Mombasa's leasing efforts. 

However, the government assures that the process for the port of Mombasa is transparent.

“We are not privatising these facilities, we are entering into a Public-Private Partnership where 15% will still be controlled by Kenya Ports Authority (KPA). After 25 or 30 years when the lease ends, everything will be reverted back,” said Transport CS Kipchumba Murkomen while appearing before the National Assembly’s Departmental Committee on Transport and Infrastructure.

KPA says it wants to lease parts of key ports to generate about $10 billion (Ksh1.5 trillion) per year by 2030.

More People Go For Fuliza to Survive

Seven and a half million Kenyans use Safaricom’s overdraft facility, Fuliza. This is after 100,000 new borrowers signed up, according to the telco’s H1 report. Despite the increase in the number of subscribers, the average loan size dropped from Ksh320.90 to Ksh260. Similarly, Fuliza’s contribution to the company’s revenue dropped by 40% to Ksh2 billion despite loan repayment improving to reach Ksh400.8 billion.

Despite Fuliza’s 40% drop, Equity Bank is moving into the overdraft facility market by introducing a real-time overdraft facility to its customers of up to Ksh100,000. The overdraft service by Equity competes against Safaricom’s Fuliza and Faraja products. Borrowers can access the service through their Equitel lines, Equity Bank’s Mobile App, or by dialling *247#. This service allows customers to pay back the overdraft loan within 30 days of borrowing without interest.

At the same time, digital credit provider Tala has introduced a “top-up loan feature” that will allow its customers to access multiple loans within their pre-approved limit without reapplying. The top-up feature allows Tala users more flexibility as they can top up an initial credit amount multiple times as long as they are within their due date.

“A customer is now able to borrow a specific amount of money for a particular need without having to use their full credit limit in one go if they don’t wish to. Every shilling a customer repays is added back to their available credit for them to use whenever they like,” says Tala’s General Manager, Annstella Mumbi.

In other news, President William Ruto has directed the Ministry of Cooperatives and MSMEs to explore the inclusion of asset financing in the government-run fintech product, Hustler Fund.

Win for Coffee Farmers as Govt Opens Direct International Market

The Kenyan government is taking steps to ensure fair prices for coffee farmers by opening the coffee auction's direct market, both locally and internationally. Despite buyers making purchases in US dollars, farmers have traditionally been paid in Kenyan shillings, leading to disparities. 

The New Kenya Planters Cooperative Union (KPCU) Managing Director, Timothy Mirugi, emphasised the need for transparency and stated that the government was providing subsidies on farm inputs and sharing auction prices with farmers. The move aims to empower farmers with knowledge and enable them to receive the best prices, both nationally and internationally.

“We are now opening the auction and the direct market, so that the farmer can get the very best price that not only the national market but the international market can offer,” he said in an interview with Citizen TV.

To further support coffee farmers, the government is offering extension services through county partnerships and operating demo farms. Deputy President Rigathi Gachaguahas previously highlighted plans to explore direct sales of Kenyan coffee to lucrative markets such as the US and Germany. This initiative is part of ongoing reforms to connect farmers directly with buyers, ensuring better returns for their products.

Other News in a Snapshot

• The Kenya Breweries Limited (KBL) has raised concerns over high taxes on spirits, which it says has led to an increase in the sale of fake labels and illegal liquor, leading to a 20.7% drop in excise tax collections from spirits in the first quarter ending September 2023. 
• The Kenyan government plans to biometrically register all state pension recipients between January and March 2024 to settle pensions estimated at Ksh189 billion in the 2023/24 financial year.
• The Nairobi Securities Exchange (NSE) has approved the listing of Linzi Sukuk on its Unquoted Securities Platform (USP), marking the first Shari’ah-compliant product on the platform. The Ksh3 billion Islamic secured residential-based security, issued by Linzi FinCo Trust, has a 15-year maturity period with an internal rate of return of 11.13%.
• Traders in Nairobi's Eastleigh business district are expressing concern over the adverse effects of increased taxes on key imported items such as electronics, textiles, shoes, and cosmetics. 

Eastleigh Business Traders Association chairperson, Hajj Hassan, claims there has been a substantial rise in taxes on a container of imports from Ksh1.7 million in 2017 to Ksh4.4 million in July 2023. This he compared to between Ksh700,000 to Ksh1 million per container in Tanzania and Ksh2.5 million per container in Uganda.