Raila warns of effects of US credit crisis

The ripple effects of the American credit crisis could spill into Kenya faster than expected, Prime Minister Raila Odinga warned on Friday.

Mr Odinga said Kenya needed more investment and trade to develop its market.

“The Nairobi Stock Exchange (NSE) 20-share index has already dipped to under 5,000 points, an all-time low,” said the PM while addressing the Kenya Consultative Group forum.

Difficult times

Mr Odinga, who was speaking at the Kenyatta International Conference Centre, was concerned that the American crisis was unfolding at a time the country was facing difficult times.

His consolation lied in the fact that Kenyans were a resilient people.

“They know where they want to go. Our job as Government is to help them get there. We are aware that without rapid economic growth we shall be unable to make the stride toward a stable and prosperous nation,” Mr Odinga told Kenya’s development partners.

He encouraged the country’s development partners to play a critical role in promoting and financing trade-related activities.

The Wall Street crisis has been termed the worst since markets reopened after the September 11, 2001, terrorist attacks in the US.

There are widespread fears about the US financial system’s stability, with Lehman Brothers having filed for bankruptcy and insurer AIG struggling for survival. AIG has, however, been bailed out by the US government.

According to the Wall Street Journal, the crisis led to a broad and steep decline in major indices as investors were worried about the impact of the latest twists in the credit crisis on the economy and the outlook for profits.

The head of Investment at Zimele Asset Management, Mr Isaac Njuguna, said Kenyans should not think they are insulated. Unavoidably, he said, the country is experiencing the ripple effects.

Mr Njuguna said Kenya was part of the global society as it traded with other world players.

“Look at the surging inflation globally, whose effects had devastating effects on the price of commodities in the country. The current crisis has a leaning to the weakening shilling,” he said.

Already, the US dollar is exchanging well above the Sh70 mark.

“Kenya being a net importer, we can only pray that issues stabilise sooner than later. Otherwise sooner or later we will be hard hit just as was the case in the skyrocketing oil prices,” said Mr Njuguna.

The official said the outcome of goings-on on the global market were unlikely to go down well with most investors, most of whom might start liquidating their shares.

“As the share price moves down, everybody will want to minimise the loss by offloading. That will push the market into more instability for the supply will be far outweighing the demand,” he said.

More resilient

Mr Njuguna attributes this to free flow of information.

“Our consolation perhaps is the fact that our banks are stable. We are more resilient in that line than the US,” he added.

However, Mr Nguhi Gitau, a research manager at Dry Associates, does not think that the Kenyan stock market will be affected as much.

“Well, people might lose confidence in the stock market but it will be short-lived to spread to Kenya. We are not directly linked with the affected markets,” she said.