This archive report was first published on 29 August 2019.
Kenya's economy is facing a critical challenge: low money supply. This is evident in the recent performance of the Nairobi Securities Exchange, where 17 listed firms have seen their share prices fall below Sh5 per unit, with 5 trading below one shilling. The NSE 20-Share Index has hit a 10-year low, raising questions about the effectiveness of government investments in infrastructure.
Despite significant investments in roads and railways, the ordinary citizen is not benefiting from these developments. The statistics are stark: the total currency in circulation in Kenya is Sh540 billion, translating to a paltry Sh10,800 or USD 108 per capita. This is in contrast to countries like Switzerland, Singapore, and Saudi Arabia, which have significantly higher currency per capita.
The root cause of this problem lies in the country's economic strategy, which has emphasized fiscal policy over monetary policy. While government investment in infrastructure is crucial, it is not enough to stimulate economic growth without a corresponding increase in money supply. The Central Bank of Kenya, responsible for monetary policy, has seen its mandate disrupted by parliament's interest-rate capping legislation, which has created perverse reactions in the market.
It is time for a meeting of minds between economic policy technocrats and their legislative counterparts to address this issue before it's too late. The future of Kenyan businesses depends on it.
Ken Gichinga is Chief Economist at Mentoria Economics; Twitter: @kgichinga
