NAIROBI, Kenya, Dec 11 – Kenya is soon headed for a ‘serious recession’, according to leading investment banker Jimnah Mbaru.
The former Nairobi Stock Exchange (NSE) Chairman says decreased revenue from the Tourism sector and a decline in remittances from the Diaspora would be the major factors that would the drive the economy into a recession.
“Most foreign portfolio investments on the NSE have been liquidated by the fast moving and unpredictable hedge funds who had invested on the NSE,” added Mr Mbaru in an article published on the ‘Opinion’ section of this website.
Hedge funds are institutions which invest in risky assets for high returns and are ready exit any market on the basis of unpalatable information.
The financial expert further pointed to a decline in farm inputs as well as spiralling food and oil prices.
He has proposed that the government adopts economic expansion as a way to contain prolonged recession, by among others, lowering interest rates.
“The Central Bank has already reduced the cash ratio for commercial banks from six percent to five percent…..I however contend that this is not enough,” said Mr Mbaru, who argued that the ratio should have been reduced by three percent.
“This would have enabled overall interest rates to come down,” he stressed. “With low interest rates you can rejuvenate investments particularly in the manufacturing sector, the construction sector and housing sector as well.”
Lower interest rates can also spur growth at the Nairobi Stock Exchange, he said.
Mr Mbaru has further proposed that the government invests Sh41 billion, the equivalent of what it divested with the privatisation of Safaricom.
“This the government can do by either acquiring from the market a substantial portion of the float of Safaricom shares (maybe 30 percent) on the NSE or by asking Central Bank or NSSF to acquire a substantial portion of Safaricom shares and other type of shares from the market,” he said.
This way, he added, additional liquidity will be injected into the market.
Mr Mbaru, who is also Chairman of Dyer and Blair Investment Bank, has also proposed ‘unorthodox’ approaches to contain prolonged recession. They include lending about US$400 million to Rwanda, Burundi, Uganda and Southern Sudan to buy Kenyan manufactured goods and services.
“Such exports would stimulate the Kenyan economy,” he argued. “The government can borrow such funds from Central Banks by issuing long dated Dollar dominated bonds.”
A fourth way of helping Kenya escape a major recession, continued Mr Mbaru, is for Nairobi City Council to demand that all houses in the City get connected to the sewer lines. The ensuing contracts would stimulate growth.
Read Mr Mbaru’s full article on the “Opinion’ section.