Analysts wont take the fall for Kenyan markets instability


The Central Bank of Kenya blames commercial banks and unfounded predictions from market analysts, for the year instability in the local markets however some analysts disagree.

At a press conference earlier this week, governor of the Central Bank Dr Patrick Njoroge said he noticed an issue in discipline, that the movement of the Kenyan shilling was not always only because of demand and supply of the dollar but was also due to misinformation being released into the market by analysts.

Reginald Kadzutu, Research Analyst with Craft Silicon supposes the governor’s reasoning is to try pass the buck, that the country’s instability is ‘nothing fundamental, it’s speculative’.


“There are many factors that you can put in place and actually see that the shilling is currently still overvalued at 105, we expect it to go further down but it is a market and the Kenyan market is not a perfect market,” he said.

Kadzutu reckons they are working with information asymmetry which allows for arbitrage to enter the market and that people are not properly informed.

“If I have more information than you, I’ll use my information to make money – if I am able to create false information in the market and still make money, there are no rules that say I can’t come out on TV and say the shilling will go to 110, if the people believe me,” said Kadzutu.

That is how markets move he says, that it is about the amount of information people have and how they interpret it.

“So if I believe the shilling is oversupplied, I’ll sell the dollars I have or buy more dollars depending on how I interpreted the information and the Central Bank cannot have monopoly on how people interpret that information”.

Kadzutu says if they hope to influence the information in the market then they should supply more information than is being provided by everyone else and when they do provide information it cannot be a month or two behind.

“If you go to the website right now, the latest economic indicators they have are for the month of August and we are in September so you can’t blame the analysts for digging up information and doing forward looking projections.

As Kenya has been ranked the 99th most competitive economy in the world and 9th in Africa, in the 2015/16 World Economic Forum report, surpassed by South Africa and Rwanda, Kadzutu explains that it needs to be contextualised.

“They are not looking at growth indicators they are looking more at entry indicators so it’s competitive as in who is easier to attract foreign direct investment into a country,” he said.

He adds: “The ranking is looking at comparing certain indices, how long does it take to get a business permit in this country compared to this country, what is the cost of doing business in this country compared to this country.”

This is how we find Switzerland on top he expands, “their rules are less stringent”.

“I guess Kenya suffers because of labour cost in Kenya are one of the highest in the region, electricity costs in Kenya are also high –  as much as the government is trying to reduce those – and the little animal called corruption”.

Kadzutu spoke on the sugar industry and how every sugar company is suffering in Kenya because of “structural defects”.

“Production yields per hectare in Kenya are the lowest in the region but the cost of producing that one hectare are the highest in the region so you find it becomes a serious problem going forward.”

“It is an injustice that government wants to push money into it to try consolidate the small stakeholder farmers to create more middle sized to commercial farming of sugar.”