EAC currencies gain against dominant Kenyan shilling

In less than a year, the Kenyan shilling has lost about 20% of its value relative to regional currencies, diminishing its dominance in the area and hurting importers of products from Tanzania and Uganda.
When compared to mid-July of last year, the value of the Kenyan currency is currently 19.7% lower against the Uganda shilling, while its value against the Tanzania shilling and the Rwandese franc has decreased by 12.1% and 4.4%, respectively.
According to data from the Central Bank of Kenya, at the start of trade last Friday, one Kenyan shilling was selling for an average of USh25.80, Tsh17.30, and Rwf8.30.
The Ugandan currency has increased in value relative to the Kenya shilling by around 29.5% since March 2020, when the Covid-19 disruption began.
In this time, the exchange rates between the Tanzanian shilling and the Rwandese franc increased by 24.1% and 10.7%, respectively.
The Kenyan shilling’s ongoing depreciation against the currencies of Uganda, Tanzania, and Rwanda results in substantially lower prices for Kenyan exports to the area than in the past.
For instance, because of the weakening Kenyan shilling, commodities that used to cost Ugandan traders Ksh1 million to import around March 2020 now cost less by roughly Ksh292,000.
Kenyans who purchase from Uganda, however, are at a disadvantage since they must now spend around Ksh1.3 million to purchase the same amount of products that they could have purchased from the landlocked nation of East Africa for Ksh1 million in March 2020.
Shoes, clothing, cosmetics, and human hair are among of the affected imports, especially those coming from Uganda, according to Samuel Karanja, the chief executive of Importers and Small Scale Traders Association, who spoke to the Business Daily.
“Businesses in the area are finding it more challenging to import items. In order to get the same amount of commodities we used to get, say, a year earlier, many of us have had to reduce the volume of items we are importing or have had to increase money,” said Mr. Karanja in a phone interview.
Additionally, because the selling prices for these products aren’t fluctuating much in Kenya, our profit margins have been shrinking. We are concerned that it will be challenging to stop the shilling’s wild decline.
Despite being a landlocked nation, Uganda imports products via Kenya’s Mombasa Port. When commodities cross borders like those at Busia and Malaba into Kenya, taxes are applied, and Uganda then sells back to Kenya.
According to official trade data, Kenya’s exports to Uganda climbed in value by 40.4% in the first five months of the year, from Ksh36.8 billion to Ksh51.68 billion.
The increase in the value of Kenya’s exports to Uganda suggests that when the value of the Kenyan shilling declines relative to the Ugandan shilling, Ugandans may be finding Kenyan goods cheaper and hence purchasing more of them.
At the same time, Kenya’s imports from Uganda increased by 10.8% to Ksh15.95 billion. Due to the depreciation of their own currency, Kenyans are currently paying extra for items from Uganda.
According to reports, some traders at the Kenya-Uganda border who were importing eggs from Uganda have given up or reduced their operations because the weak local currency has reduced their revenues.
Tanzania showed a similar pattern, with exports increasing by 11.8% to Ksh23.6 billion and imports falling by 31.5% to Ksh14.78 billion.
For the first time in decades, Kenya’s imports from Tanzania outpaced exports in the six months leading up to June 2021, and the trend is still evident in the most recent figures.
The shilling’s performance versus the major currencies across the world, such as the US dollar and the British pound, mirrors the decline in value of the Kenyan shilling relative to that of its neighbors.
Since mid-July of last year, the Kenya shilling has lost 19.5% against the dollar and 32.1% against the English pound.
The Kenyan shilling’s depreciation versus the dollar has exposed the nation to higher import prices as well as increased costs for servicing its dollar-denominated loans.
Kenya relies heavily on imports for its capital and consumer products, particularly gasoline and industrial raw materials, therefore the negative effects of a depreciating currency outweigh the positive effects of exports.
The cost of servicing debts increased, worsening Kenya’s total balance of payments position to a deficit of Ksh127.8 billion in the first quarter of 2023, according to official figures.
According to the Kenya National Bureau of Statistics, “during the quarter under review, there was a depletion of gross official reserves towards servicing of public external debt.”
Business Daily