Kenya has witnessed a significant surge in foreign exchange turnover, with a total of N55.77 trillion traded in the first ten months of 2023. This marks a notable increase of 29.8 percent compared to the corresponding period in 2022. Data from the FMDQ Exchange indicates that foreign exchange transactions, along with Money Market (MM) and Central Bank of Nigeria (CBN) bills, continue to dominate secondary market turnover transactions.
Key Points:
- Impressive Growth: Foreign exchange turnover in Kenya experienced robust growth, rising from N42.96 trillion in the first ten months of 2022 to N55.77 trillion during the same period in 2023.
- Dominant Players: Foreign exchange transactions, Money Market, and CBN bills remained the dominant players, contributing significantly to the total secondary market turnover on the FMDQ Exchange.
- Economic Rebound: The surge in business activities post the 2023 general elections and a steady increase in global oil prices have contributed to the rebound in Kenya’s economic landscape.
- Currency Depreciation: The value of the Naira against the dollar depreciated by 80.81 percent Year-on-Year (YoY), reaching an average of N797.43/dollar as of October 2023, compared to N441.02/dollar in October 2022.
- Contributing Factors: Analysts attribute the growth in foreign exchange turnover to increasing business activities, double-digit inflation rates, and a hike in the Monetary Policy Rate (MPR) by the CBN.
- Challenges: The backlog of unpaid foreign exchange by the CBN and the economic impact of the global oil market contribute to challenges in the foreign exchange trade.
- Outlook: Despite challenges, the global and Nigerian economic growth in 2023 has been better than 2022, reflecting increased demand by investors and exporters.
- Currency Depreciation Dynamics: Naira depreciation is seen as a function of demand and supply, with the CBN struggling to meet foreign exchange demands in recent years.
- Future Predictions: Reports suggest that limited inflows from crude oil sales, fragile capital flows, and foreign remittances will continue to impact the local currency negatively in 2023.
Conclusion: The surge in foreign exchange turnover in Kenya underscores the country’s economic resilience and increased business activities. While challenges such as currency depreciation and global economic dynamics persist, analysts remain optimistic about the potential positive impact of factors like the commencement of operations at the Dangote Refinery in 2023. As the nation navigates these economic dynamics, a cautious approach to exchange rate management and foreign exchange policies is crucial for sustained stability.
