By Elias Murega
Dollarization occurs when a country uses the US dollar or another foreign currency as its official or unofficial currency. It usually happens when a country’s own currency is unstable or loses its value due to inflation or other economic challenges.
For instance, in recent years the Kenya shilling has been weakening against the US dollar. Kenya is facing a high demand for dollars resulting to trade deficit because most of Kenya trading partners like Russia, Saudi Arabia China, India, and Malaysia majorly use the dollar hence increasing its demand.
Consequently, Kenya’s Treasury uses its limited dollar reserves to pay for imports, which puts pressure on the exchange rate.
Allow me to raise fundamental macroeconomic issues on the topical issue, Leveraging on Agriculture and Dollarization. To be specific, Kenya significantly imports the top five agro-products – wheat, palm oil, sugar, corn, rice and many other agricultural products.
Continued use of dollar trading in international market will raise the dollar demand to eternity especially when we are too dependent on imports. In the current state of affairs, the Kenyan economy might be headed for a meltdown if specific and intentional measures are not put into place.
So what is the way forward? Kenya should either adopt what Treasury Cabinet Secretary Njuguna Ndung’u has suggested, that is to de-dollarize the economy, meaning that they will use other currencies for trade such as the Chinese yuan, the Indian rupee or Africa radically adopts its own legal tender. This would reduce the demand for the green buck in Kenya and help stabilize the shilling.
Paradigm shift and heavy investment on cutting edge agribusiness technologies, innovations and best management practices with focus on increased productivity would be a game changer hence mitigating on shilling volatility and pressure against the dollar.
Kenya is abundantly blessed with natural resources (minerals and renewable energy) and tapping and targeted heavy investment on harnessing solar, geothermal, hydro energy resources and directing it to our national grid forms a huge dividend for localized monetization.
Further, focus on green and clean energy technologies and innovations will significantly reduce heavy reliance on expensive fossil fuels. Rather than exporting raw materials, Kenya needs to focus on processing and value addition of her natural resources, then export finished goods. Investment on green and blue economy can act as great imperatives for tapping on high value exports.
Tapping on world market as well as building economy resilience on global market supply chains would cushion the Kenyan economy against such shocks.
Firstly, heavy investment on manufacturing, agro-processing and value addition of her natural materials portends to increase the country’s competitiveness, tap more value on exports thus reducing dollar pressure and trade deficits which will lead to reduction of demand for the dollar.
The other alternative is to increase exports by leveraging on agriculture and other competitive products in the international market. Some of the key focus would be tea, coffee, miraa, horticultural products among others as it were in 1970s to 1990s.
This can be achieved through Kenya Kwanza honoring and implementing its manifesto of the Bottom-Up Economic Transformation Agenda (Beta) that aims to tackle complex domestic and global challenges, increase the budgetary allocation to agriculture, support value chain development and inclusivity and embrace digital solutions.
Secondly, there is need to transform our agricultural policies to serve the real needs of farmers, both small and large, facilitate establishment of a vibrant, competitive and privately owned seed industry, remove the government from the fertilizer business, encourage development of more efficient and accessible input and output markets and improve rural infrastructure by continued campaign on farmer registration.
The third is to invest in climate-smart agriculture such as agroforestry, conservation agriculture and irrigation, enhance resilience and productivity, reduce greenhouse gas emissions and sequester carbon. President William Ruto has been seen at Global platform articulating the same, which is a welcome move.
Fourth, the government should promote agricultural innovation and research especially in areas such as biotechnology, digital agriculture and agro-processing to increase competitiveness, quality and value addition.
Finally, the KK government should strengthen institutional and regulatory framework for agriculture by establishing an independent agricultural regulatory authority, harmonizing the laws and policies governing the sector and enhancing the capacity and coordination of the relevant stakeholders. The government can use existing infrastructure like the Kenya National Farmers’ Federation to reach out to farmers and other stakeholders.
The writer, a Finance expert, is former MCA for Meru Municipality
