Strong Shilling spawns Profit generators

The metamorphosis of the Kenyan shilling from the worst-performing currency in the world in 2023 to the best-performing in 2024 turned chronic loss makers into profit generators.

Two of the largest forex consumers in Kenya posted significant profits due in part to the rebound of the Maasai. Kenya Airways and Kenya power and lighting Company turned black.

Both firms attributed part of the good fortune to the rebound in the shilling’s value in addition to improved business.

Kenya Airways for instance, which last made profits in 2013, made a significant KES 513 million in the half-year to June 31, 2024. Also KPLC, which had posted KES 4.4 billion loss in 2023 posted a massive KES43.46 billion profit last year.

The Kenya Airways, management and its Board could not hide their glee as they announced the return to profits after a decade-long lean period. In fact, the Chairman, Michael Joseph, branded it “a milestone.” Over the same period in 2023, the airline posted a huge KES 21.7 billion loss. The airline attributed the rebound in part to the shilling’s appreciation which cut its overheads by 22 percent. Of course, its business operations which, grew by 10 percent, generating KEs 91 billion in revenue played a significant part.

The glee was understandable given that the airline had been branded “loss-making KQ” by “keyboard mercenaries” and the local media. It had been making losses since 2014. Yet the “mercenaries” played a major part in driving KQ into loss-making territory.

Up to 2014, KQ was flying into 41 Destinations in Africa, a large part of them, being in West Africa. Then the Ebola virus broke out in West Africa and the “keyboard Mercenaries” a huge proportion of them ignorant, whipped hysteria that forced the government to halt flights to West Africa for close to a year.

Meanwhile, the nascent Rwandair, filled the void, flying Kenya-bound West Africans into Kigali, Rwanda, from where they bused to Nairobi. They never brought Ebola into Kenya. The panic was uncalled for and it cost KQ dearly in lost business while at the same time meeting its financial obligations, some of which, like paying for aircraft leases, could not be adjusted downwards.

As it struggled to get out of the mess, COVID-19 came calling forcing a major lockdown which flew the aviation industry worldwide into a spin.

 KPLC, the power distribution utility also suffered from the cirrhotic shilling in 2023. All its power purchase agreements are dollar-denominated, while it bills in Kenya shillings. This led to a mismatch between revenue and costs.  It needed more shillings to pay the same US dollar contracts leading to losses.  The shilling’s rebound, which was equally fast, slowed the hemorrhage.  It cut financing costs by KES 24.84 billion.

The shilling rebounded more 23.4 percent against all major currencies in a matter of weeks. It has since held its ground over the last ten months of 2024. This suggests that major forex users such as KQ and KPLC could report large profits at the end of the next reporting cycle.