Foreign firms and investors counting losses over depreciating Kenyan shilling against dollar

Depreciating Kenyan Shilling against the dollar wipes out KSh13bn payout to foreign companies’ investors.

Kenya’s status as a top investment destination is in jeopardy due to the significant depreciation of the Kenyan shilling against the US dollar, which has severely hurt foreign-owned businesses and investors with steep exchange losses on dividends and earnings sent abroad.

Foreign investors have lost Sh13 billion due to currency devaluation alone, according to an examination of dividend repatriation across 13 listed companies.

By purchasing the hard currency on the local market to send money outside, investors lost billions of dollars, wiping out the majority of any year-over-year gains they may have had in shilling terms.

The impact on repatriated payouts has increased year over year due to several of the largest businesses at the Nairobi Securities Exchange (NSE) being forced to reduce actual dividend payouts this year compared to 2022.

Compared to the dollar, the shilling has lost 20% of its value since last August, falling to an average of 143.27 units, according to the Central Bank of Kenya’s (CBK) official exchange rate.

Retail buyers in tier-one commercial bank halls are, however, paying between Sh148 and Sh149 per unit. 

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The large lenders supply the bulk of forex to institutional investors.

Companies with large foreign ownership are some of the biggest dollar buyers during their dividend season for onward payment to their external shareholders.

“Investors will lose when repatriating their profits. In addition, unpredictability in the exchange rate makes investment risky, and investors love predictability,” said Prof XN Iraki, an economist at the University of Nairobi.

The possibility that these currency losses may discourage foreign investment into the nation and reinvestment of revenues into the domestic economy given the future decline in real return is now the main cause for concern.

“It brings investor apathy, especially among those who can easily get a similar rate of return in their home markets. It also discourages reinvestment, and when the repatriation is not matched by inflows it creates more pressure on the local currency and thus a prolonged cycle of weakening,” said Wesley Manambo, an analyst at Genghis Capital.

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