Trump Is Trouble for Emerging Economies –Patrick Njoroge CBK

The new U.S. administration spells trouble for frontier economies because its policies are breeding volatility that discourages investors from taking risks, the Kenyan Central Bank Governor said Tuesday.

Patrick Njoroge, a 30-year veteran of the International Monetary Fund who returned to his native Kenya in 2015 to lead the central bank, said President Donald Trump’s impact on markets was going to make 2017 the toughest year yet for open, investment-friendly frontier economies such as Kenya’s.

Mr. Njoroge has become one of the continent’s most senior policy makers to consistently warn of the negative impact the new White House leadership could have on African economies that yearn U.S. investments and a continued positive trade environment for their goods to solidify decades of economic progress that has helped millions out of poverty on the continent.

The contours of the Trump administration’s policy on Africa remain a mystery, with the White House yet to outline policy prescriptions for trade and security relations with the continent.

“Welcome to the era of riding a wild horse…2016 was a bad year for volatility and 2017 has the makings of being even worse,” Njoroge said in an interview at the margins of the inaugural Wall Street Journal Africa conference. Asked whether he was comfortable being a principal spokesman to warn against the impact a more protectionist U.S., the governor said: “I have no choice.”

Kenya gets about 10% of its annual foreign direct investment from the U.S., and Mr. Njoroge said investors would think twice about taking risks in Africa in a volatile world, which tends to drive money to stable, predictable choices.

Kenya has emerged as one of the winners of the commodity crisis that has roiled several major African economies, such as Nigeria’s, that are dependent on oil or mining.

Instead, the East African nation has a diversified economy and is a net importer of oil. Its relatively strong institutions and the circumstances of the last two years have kept Kenya afloat, growing at just shy of 6%, which is nearly four times the sub-Saharan Africa average, according to the IMF.

Mr. Njoroge credited the country’s flexible exchange-rate system for part of the resilience, and said neither he nor any politicians would go near changing the longstanding policy of a free-floating Kenyan shilling.

“We are fully wedded to our flexible exchange rate,” he said.

He also said that a controversial interest-rate cap imposed by parliament on bank loans would be “temporary.”

The IMF said in February that the cap, which was introduced in September 2016 and prohibits banks from charging more than 400 basis points above the central-bank benchmark rate for loans, will shave nearly a full percentage point off the country’s growth rate this year.

Kenya’s elections in August this year won’t negatively impact the economy, Mr. Njoroge said. Investors have been observing Kenyan politics ahead of the elections, wary of a repeat of postelection violence in 2007-08 that left thousands of dead and led the president and deputy president of the country to the dock of the International Criminal Court in The Hague.

“Kenyans have said ‘never again,'” Mr. Njoroge said. And, he added, whoever wins the election will be good for the economy, as there are no candidates who oppose the free market and private sector. The incumbent, President Uhuru Kenyatta, is seen ahead in the race.

A moratorium on new banking licenses, imposed by Mr. Njoroge in late 2015 to force a consolidation and strengthening of domestic banks, will be lifted “when the time is opportune,” Mr. Njoroge said. He said his intention had been to allow local banks to shore up capital and strengthen their positions, and he felt that goal was nearly complete.

Read the full story on the Morning Star.