The stability of the Kenya Shilling is seemingly hanging in the balance as it continues to tank further with each passing day against the US dollar.

It is this volatility that has the manufacturing sector worried about the operating environment in the country, arguing that if a solution is not found to stop the free fall, Kenya could be rendered unattractive for business.

But just what happened to East Africa's dominant currency?

On January 15, 2024 news of further depreciation of the Kenyan currency spread like wildfire, with the Shilling hitting an all-time low of 160 against the US dollar, according to the official Central Bank of Kenya (CBK) exchange rate.

The Shilling's alarming depreciation can be traced back to 2023 when the Kenyan currency rapidly lost its value from an average of Ksh.120 against the dollar in January, down to an average of Ksh.130 to the dollar by mid-March, dropping further to Ksh.140 by mid-June and Ksh.150 before the end of October, only to cross the Ksh.160 mark in mid-January 2024.

It is this free fall that experts are now terming as a market correction, with some laying the blame squarely on the monetary policy committee for failing to read the signs globally and reacting in time.

“Where we are right now is we have gone through a period of correction and that is always going to be more painful and more violent, partly because it's not been a natural evolution in the Shilling...it has just been that the market has essentially enforced a value,” EFG Hermes Kenya Managing Director Muathi Kilonzo said.

PKF CEO Alpesh Vadher added: “We need to go back two years after COVID, there was high inflation and all the Central Banks used the monetary policy to increase the interest rate. Unfortunately, Kenya didn’t follow that route, they increased the rate from only seven to nine and a half per cent and to ten and a half per cent when the new Governor came on board, so that is what has caused our Kenya Shilling to crash, I think we should have increased our interest rate much, much faster.”

At the same time, the lack of cohesion between the National Treasury and the Executive over the way forward in regards to the Eurobond bullet repayment did not inspire investor confidence to spur foreign direct investment back to the country, even as experts note that the repayment will be a defining moment for the Shilling.

“I think there is a little bit of panic, I’m just hoping that we somehow manage and the government gives more confidence to investors that we should be able to pay the Eurobond in June 202...our President committed that part of it will be paid by December but unfortunately that has not happened for various reason, that’s one area that should build up confidence,” Vadher said.

It is this cocktail of mishaps that has the manufacturing sector concerned over the country's competitiveness saying that should the Shilling continue to haemorrhage, more value Kenya will lose its attractiveness.

“We are eroding the competitiveness because we have become more expensive in terms of the importation of raw materials and intermediate products, and this is a major concern that needs to be looked at from a multi-agency perspective,” KAM Head of Policy Advocacy Job Wanjohi said.

As the Kenya Shilling continues to weaken against major global countries, some experts say it could be a blessing in disguise to possess Kenya as a cheap destination for tourism and investment.