Shilling wipes out Sh13bn payout to foreign investors

The sharp depreciation of the Kenyan shilling against the dollar has hit foreign-owned firms and investors. FILE PHOTO | JEFF ANGOTE | NMG

The sharp depreciation of the Kenyan shilling against the dollar has hit foreign-owned firms and investors with steep exchange losses on expatriated dividends and profits, threatening Kenya’s position as a preferred investment destination.

An analysis of dividend repatriation across 13 listed companies shows that foreign investors have taken a Sh13 billion haircut on currency depreciation alone.

Investors lost the billions as a result of buying the hard currency from the local market to send money abroad, negating most of the year-on-year gains they may have enjoyed in shilling terms.

Read: Why IMF wants CBK to let the shilling depreciate

A challenging economy has also forced some of the larger companies at the Nairobi Securities Exchange (NSE) such as Safaricom and East African Breweries (EABL) to cut the actual dividend payouts this year compared to 2022, further deepening the year-on-year hit on repatriated payouts.

Since last August, the shilling has depreciated against the dollar by 20 percent to an average of 143.27 units as per the official exchange rate published by the Central Bank of Kenya (CBK).

Retail buyers in tier-one commercial bank halls are, however, paying between Sh148 and Sh149 per unit, a Business Daily spot-check in their city centre branches showed on Wednesday. These large lenders supply the bulk of forex to institutional investors.

Companies with large foreign ownership are some of the biggest dollar buyers during their dividend season for onward payment to their external shareholders.

“Investors will lose when repatriating their profits. In addition, unpredictability in the exchange rate makes investment risky, and investors love predictability,” said Prof XN Iraki, an economist at the University of Nairobi.

The exchange losses have, for instance, seen Vodacom Group and Vodafone, which own a combined 40 percent stake in Safaricom, miss out on tens of millions of dollars in dividends.

In 2022, the two earned a total of Sh22.2 billion in dividends (Sh1.39 per share) from their stake, which at the exchange rate of 119.10 units a year ago was worth $186.7 million.

Their 2023 dividend of Sh19.2 billion (Sh1.20 per share), while being Sh3 billion less in shilling terms, is worth $134 million at today’s dollar rate—a fall of $52.7 million (Sh7.6 billion).

Standard Chartered Plc, which owns a 73.9 percent stake in its Kenya subsidiary, saw a fall of Sh1.1 billion in dividends after the local unit cut its payout to Sh16 last year from Sh20 in 2022.

Factoring in the exchange rate movement, however, the parent saw its dollarized dividend fall by $15.7 million (Sh2.2 billion at today’s rate).

The weaker shilling has also had the effect of cutting the gains for parent companies that enjoyed enhanced dividend earnings from Kenya.

South Africa’s Standard Bank, the majority owner of Stanbic Kenya, earned Sh3.73 billion this year compared to Sh2.66 billion last year after the unit raised its payout to Sh12.6 per share from Sh9.

In dollar terms, however, the change was worth $3.7 million (Sh530 million) once the rate movement between the two periods is considered.

The main concern now is on the risk of these exchange losses discouraging investment flows into the country, as well as reinvestment of the earnings into the local economy given the diminishing real return going forward.

“It brings investor apathy, especially among those who can easily get a similar rate of return in their home markets. It also discourages reinvestment, and when the repatriation is not matched by inflows it creates more pressure on the local currency and thus a prolonged cycle of weakening,” said Wesley Manambo, an analyst at Genghis Capital.

Multinationals that report earnings in dollars for local units have also been hit by exchange losses.

Vivo Energy Group Plc, the parent company of Vivo Energy Kenya, disclosed that the local operation recorded a 15 percent drop in revenue to $785 million for the half year ended June, from $924 million in the corresponding period last year.

In shilling terms, going by the exchange rate in June last year, the 2022 half-year revenue stood at Sh108.9 billion, while that of June 2023 at the prevailing rate was worth Sh110.3 billion.

The multinational partly blamed lower sales seen across its markets on the negative effect of depreciating currencies on margins.

Airtel Africa, in its quarter one 2024 financial report covering the three months to June, said that its East Africa region’s revenue of $519 million, which represented a year-on-year growth of 14.2 percent, would have been 22.8 percent higher without depreciation of local currencies.

The East Africa business includes Kenya, Malawi, Rwanda, Tanzania, Uganda and Zambia.

“Foreign exchange had an adverse impact of $82 million on revenue… as a result of average currency devaluations, mainly in the Nigerian naira (22.7 percent), the Malawi kwacha (16.3 percent), the Zambian kwacha (8.5 percent), and the Kenyan shilling (17.9 percent),” said Airtel Africa.

Read: Shilling hits historic low as fuel deal fails to stop slide

According to Prof Iraki, Kenya has to improve the performance of its exports in order to break the cycle of the weakening shilling.

Building confidence in the economy with predictable regulations and laws will strengthen or stabilise the local currency, he said.

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