Have you guys been following the news on Dangote and his partners injecting close to 2 Trillion KES to build a massive oil refinery in Lamu? This is easily one of the biggest FDIs in East African history.
From a macro perspective, if we stop importing refined fuel, our dollar demand drops massively. This could structurally strengthen the Kenyan Shilling long-term. But on the flip side, no one can actually find or trace the details of this contract. What are your thoughts on how this plays out for the USD/KES pair, the broader economy, and Lamu itself?
Comments (9)
Fundamentally, this is incredibly bearish for USD/KES. Our biggest drain on foreign exchange reserves has always been importing refined petroleum products. If Dangote refines it locally in Lamu, the Central Bank won't have to bleed dollars every month to pay fuel importers. The Shilling could comfortably stabilize below 110 if this actually materializes.
Keyword: 'if' it materializes. You guys are analyzing charts and FX reserves while ignoring the politics. Why is the actual contract hidden? Civil society groups have been trying to trace the sovereign guarantees tied to this 2 Trillion deal, and the government is completely silent. We might be mortgaging the entire country's future revenues to a private billionaire.
As someone from the Coast, everyone is terrified about what this means for Lamu. Lamu is a quiet, historic UNESCO heritage site that relies on tourism and fishing. Dropping a 2 Trillion shilling industrial mega-refinery there is going to destroy the ecosystem. Yes, jobs will come, but the local Swahili culture is going to be swallowed by heavy industry and gentrification.
Ali, I feel for Lamu, but the broader economy is suffocating. We need manufacturing and heavy industry. You can't run a modern economy of 50 million people purely on tourism and agriculture. This refinery will create thousands of direct jobs and completely overhaul our balance of trade. It's a necessary sacrifice.
The reason the contract is hidden is because it probably includes a 20-year tax holiday for Dangote and guaranteed state buy-outs. Just like the Adani deals and the SGR contracts. The Kenyan taxpayer will bear all the risk, and the profits will be repatriated out of the country. This won't strengthen the Shilling as much as Ochieng thinks.
Njeri has a point. If profits are repatriated in USD, it creates a new type of dollar demand. But let's look at the shortshort: Selling a borrowed currency pair with the expectation that its value will fall, allowing you to buy it back cheaper. term: the initial injection of $15B+ into the local banking system for construction, local contracting, and cement will create a massive liquidityliquidity: The degree to which a currency can be quickly bought or sold in the market without affecting its price. High liquidity means tight spreads and smooth execution. boom. Expect a huge rally in local construction stocks on the NSE.
Remember what happened in Nigeria. He built the massive Lekki refinery, and then immediately got into a war with the state oil regulators over crude supply and pricing monopolies. Don't be surprised if 5 years from now, Dangote is dictating Kenyan energy policy because we gave away too much power in a secret contract.
Despite the opacity, I'm choosing to be optimistic. A project of this magnitude puts Kenya on the global industrial map. If we can refine oil for the entire landlocked East African bloc (Uganda, Rwanda, DRC), Mombasa and Lamu become the most strategic ports in Africa. It's a game-changer.
Great macro discussion guys. As forex traders, we just need to watch the CBK reserves and the dollar inflow data over the next 18 months. If they start breaking ground, shortingshorting: Selling a borrowed currency pair with the expectation that its value will fall, allowing you to buy it back cheaper. USD/KES might be the trade of the decade. But until that hidden contract is made public, keep your stop losses tight.
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