The Kenya shilling has lost nearly 20 percent of its value against regional currencies in under a year, weakening its dominant position in the region in a trend that is serving pain to traders importing goods from Uganda and Tanzania.
The Kenyan currency is now priced at about 19.7 percent lower than the Uganda shilling when compared with mid-July last year while its value against the Tanzania shilling and Rwandese franc has also dropped by 12.1 percent and 4.4 percent respectively in the same period.
Central Bank of Kenya (CBK) data showed that one Kenyan shilling was averaging USh25.80, Tsh17.30 and Rwf8.30 at the start of trading last Friday.
When compared with March 2020 when the Covid-19 disruption set in, the Ugandan currency has gained about 29.5 percent against the Kenya shilling.
Tanzanian shilling and Rwandese franc have gained 24.1 percent and 10.7 percent against the Kenyan currency in this period.
The continued weakening of the Kenyan shilling against the currencies of Uganda, Tanzania and Rwanda means that Kenyan exports into the region are fetching far much less than before.
For instance, goods that used to cost Ugandan traders Sh1 million to import around March 2020 now cost less by about Sh292,000 thanks to the weakened Kenyan shilling.
However, Kenyans buying from Uganda are disadvantaged since they now spend about Sh1.3 million to buy the same quantity of goods that they could get from the landlocked East African country for Sh1 million in March 2020.
Samuel Karanja, the chief executive at Importers and Small Scale Traders Association, told the Business Daily that some of the impacted imports, especially from Uganda, include shoes, clothes, cosmetics and human hair.
“Importing goods in the region is becoming difficult for business. Many of us have had to cut on the volume of goods we are importing or have had to increase money to get the same volume of goods we used to get say a year earlier,” said Mr Karanja in a phone interview.
“And since selling prices for these goods are not changing that much here in Kenya, our profit margins have been dropping. We are worried that reversing this free fall of the shilling is going to be difficult.”
Uganda is a landlocked country but imports goods through Kenya’s Mombasa Port. Uganda then sells back to Kenya, with taxes being applied when goods are crossing the borders like Busia and Malaba to Kenya.
Official trade figures show the value of Kenya’s exports to Uganda had increased by 40.4 percent in the first five months of the year to Sh51.68 billion compared with Sh36.8 billion.
The surge in the value of Kenya’s exports to Uganda points to the possibility that as the Kenyan shilling slides against that of Uganda, Ugandans are finding Kenyan goods cheaper and therefore buying more.
This even as imports from Uganda to Kenya grew by 10.8 percent to Sh15.95 billion in the same period. Kenyans are paying more for Ugandan goods now given the weakening of the local currency.
Some retailers at the Kenya-Uganda border who were importing eggs from Uganda have reportedly quit or scaled down their business after the weak local currency cut their profits.
A similar trend was observed with Tanzania, with exports to the country growing by 11.8 percent to Sh23.6 billion but imports dwindling by 31.5 percent to Sh14.78 billion.
Kenya’s imports from Tanzania in the six months to June 2021 exceeded exports for the first time in decades and the trend has continued to be seen in the latest data.
The declining value of the Kenyan currency against that of its neighbours’ mirrors the performance of the shilling against the world’s major currencies, including the US dollar and the sterling pound.
The Kenya shilling has shed 19.5 percent against the dollar since mid-July last year and 32.1 percent against the sterling pound over the same period.
The weakened Kenyan shilling against the dollar has set the country up for increased costs of servicing its dollar-denominated loans and also exposed it to a higher import cost.
Kenya largely depends on imports for its consumer and capital goods, especially fuel and industrial raw materials, meaning that the disadvantages of a weaker currency are more pronounced than the gains on exports.
Official data show that Kenya’s overall balance of payments position worsened to a deficit of Sh127.8 billion in the first quarter of 2023 as the cost of serving debts shot up.
“During the quarter under review, there was a depletion of gross official reserves towards servicing of public external debt,” says the Kenya National Bureau of Statistics.
Source: Business Daily