Capital FM (Nairobi)

29 March 2012

Kenya: Currency Printing Fiasco Has Cost Country Sh2.7 Billion

Photo: Capital FM Business/ File photo
Kenyan bank notes.

Nairobi, Kenya — The Kenyan taxpayer has lost between Sh2.1 billion and Sh2.7 billion in the last seven years following the Central Bank of Kenya's (CBK) decision to place short term printing orders to meet the country's currency requirements.

Although, the six stop-gap orders which started in 2003 were necessary to ensure the country had adequate supply of currency, it cost more than it would have had the government not cancelled a three year contract won by De La Rue in 2006.

Tabulating figures from the CBK, Bura Member of Parliament (MP) Abdi Nuh discovered this anomaly, which was also confirmed by CBK Governor Njuguna Ndung'u.

"The (order) of 450 million bank notes that you made in June 2009, you would have made a saving of Sh685.9 million. Of the 483 million notes made in July 2010, you would have made a saving of Sh818.94 million," argued Nuh.

The calculations were made from data presented by the Central Bank which showed that it cost an average of £28.62 to print 1,000 pieces from the short term quantities.

Had the 2006 contract been allowed to run however, it would have cost £20.84 to print Sh50 notes; £21.03 to print the Sh100 notes; £14.15, £12.47, £12.45 to print the Sh200, Sh500 and Sh1,000 notes respectively.

Appearing before the Public Accounts Committee (PAC) investigating the multi-billion shillings scandal, Ndung'u explained that after the revocation of the agreement, they reverted to the higher rates that the government used to pay in 2002.

"It is true that the prices of the 2006 international tender were less expensive than the 2002 prices we have relied on," the governor admitted but was quick to add that the 2002 rates reflected the cost of printing in Kenya while the former would have been the money paid had the firm produced the notes in Malta where it would have benefited from economies of scale.

However, he did acknowledge that the Central Bank might still be forced to make more orders since it currently does not have enough supplies to last until 2013.

The government has operated without a money printing contract for the last 10 years after the Kibaki administration came into power to allow for competitive international bidding.

However, the committee felt that soon after, the government went back to the 'old' ways to allow politically connected people to continue profiteering from the system.

This is because in 2007, an international tender won by De La Rue was also terminated on the pretext that it was not wise to print money during an election year.

Attempts by the governor to argue that he assumed office in March 2007, which was before the contract was terminated and the short term orders were initiated did not stop the MPs from demanding to know why he has not made any effort to stop the arrangement which was costing the country more.

The committee observed that the governor was not as proactive as his predecessor Jacinta Mwatela, who was in an acting capacity but questioned the currency procurement process which she noted, was uncompetitive. Her opposition to this deal cost her, her job.

Negotiations with De La Rue for another money printing contract have dragged on for years and the government has been reluctant to find alternatives fearing that the British firm will close down its Ruaraka-based factory.

The committee however said the government cannot continue to safeguard the 260 jobs at the currency minting firm at the expense of protecting public funds.

The MPs also noted that should the government opted for other sources of currency printing, the factory would still continue to operate since it is used to print currencies for other countries.

Whether the government will sign into another deal with De La Rue or opt to source for the services from other quarters will only be a matter of time. However, it is clear that the government needs a longer term money printing deal since the short term orders are not cost effective.

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InFocus

Currency Printing Fiasco Costs Kenya Billions

Kenyan bank notes.

Taxpayers have lost billions of shillings in the past seven years following the Central Bank's decision to place short term printing orders to meet the country's currency demands. Read more »