Our Western trade and developments partners are also going through another fiscal and monetary policy phase – the end of massive Quantitative Easing (QE) in Europe, and with the US Federal Reserve Bank interest rate hike in December 2015 bringing to a cataclysmic close a decade of cheap capital across the globe.
Effects have been fast and furious in Emerging and Frontier markets, evidenced by the volatility in currencies, equities and other tradeable economic assets; precipitous fall in commodity prices, as markets readjust and capital seeks safer havens and better returns. But all these are lessons for us in the overall scheme of packaging Kenya as the perfect long-term investment destination – as our economy is better suited to ride out the downturn being a non-commodity dependent economy.
And statistics bear me out. Kenya has the most to benefit from the fall in commodity prices for a number of reasons, including being the least dependent on commodity exports –we have a fairly diversified economy, driven by Agriculture, services, and manufactured goods, having the least exposure to falling demand in Asia, China and American export markets among our peers – 48 per cent of our exports are to African countries, while Nigeria’s key export market is Asia/China at 47 per cent, a whopping 77 per cent of which is in oil and mineral fuels. South Africa’s intra-Africa trade stands lower than ours at 36 per cent, while Nigeria’s stands at a paltry 16 per cent.
Regional and pan-African economic integration as envisaged in the Tripartite Free Trade Area (TFTA) bringing together the 26 states in SADC, EAC and COMESA economic blocks will therefore immensely benefit us.
Although the Nairobi Securities Exchange (NSE) is Africa’s third largest at US$50 billion, after Nigeria’s at US$6o billion and Johannesburg’s capped at US$1 trillion, we have activated plans to upgrade Nairobi to a regional Financial Centre, modelled on the City of London Financial Centre models, intermediating the RMB amongst other financial products and services through targeting Central Banks, 70 of whom have already invested their reserves in RMB, including 5 of the top ten; Sovereign Wealth Funds (SWFs), private investors and development finance institutions.
Signing a Most-Favoured Nation (MFN) trade status with China would be a master-stroke to unlock value and drive volumes up. We will attract RMB-denoted bonds, asset classes and inflows given that portfolio rebalancing and hedging will occur as the aggregate SDR assets of the central banks in the IMF member states of around US$ 280 billion have an equal amount of SDR liabilities.
Although China’s central bank has pledged to accelerate efforts to overhaul the country’s financial system, further opening its markets and keeping the RMB stable, concerns still abound as evidenced by last year’s Chinese domestic currency devaluation and stock market volatility. These will become more common the more China opens up its markets, consequently exposing its economy to the risk of capital flowing out. These cooling growth prospects make investors shop for alternative RMB investments of between US$ 800 billion to more than US$1 trillion as estimated by analysts. Even with the conservative estimate of reallocation of about 1 per cent of global reserves each year would mean about US$80 billion global flows annually, which we should tap into by enacting the appropriate legal and regulatory reforms necessary to structure our financial markets to meet the global benchmarks and best-practice.