The endless depreciation of the Kenyan shilling is raising concern among importers and business people currently experiencing first-hand pain of the dollar shortage that has seen them part with up to Ksh120 per dollar against the quoted rate of Ksh116.
On May 30, the Kenya Association of Manufacturers expressed worries over the dollar shortage, claiming members, who mainly rely on imported raw materials, cannot access dollars at the official market rates.
So far, rising inflation has heightened the cost of living, and the depreciating currency is only intensifying the pain as manufacturers complain of rising production costs following the persistent dollar shortage.
In the last year, the shilling has fallen by $0.0007 from about $0.0093 to $0.0086, meaning that what Kenyans could buy at $100 previously now costs at least $8 more, without factoring in inflation.
In the same period, other currencies in the region have remained relatively stable, only decreasing by a small margin, even though most of the shocks that caused currency depreciation, such as Covid-19 and the Ukraine crisis, cut across.
The Ugandan shilling depreciated by $0.00002, Tanzanian shilling by $0.00001, while the Rwandan franc has fallen by $0.00003.
Kenyan economist Kwame Owino says the higher depreciation rate of the shilling could be due to internal policies and regulations constricting the inter-bank forex market.
“The little clarity in the price signals of Kenya’s inter-bank foreign exchange, and growing negative trade balance are the greatest possible contributors to the high depreciation rate,” Owino said.
Despite Kenya’s foreign currency reserve remaining well above the country’s and East African Community’s statutory requirements, the dollar shortage problem is disconcerting, seeing that Malawi recently devalued its currency by 25 percent to deal with a similar problem.
Central Bank of Kenya Governor, Dr Patrick Njoroge, has since refuted claims of a dollar shortage, saying that although there was rising demand for dollars about two months ago, the situation has normalised.
A major oil manufacturer, Pwani Oil, that produces Freshfri, Salit and Fry Mate cooking oils in Kenya has temporarily shut down its oil plant due to shortage of raw materials blamed on difficulties accessing dollars to pay suppliers on time.
The consumer goods manufacturer say its bankers have been only processing half of the dollar orders it requires to pay the suppliers of crude palm oil imports from Malaysia amid stiff global competition.
“Getting sufficient amount of dollars required to support the factory in terms of getting sufficient raw materials is not happening. We are not even running the plant right now because of lack of raw materials [crude palm oil],” Pwani Oil Commercial Director Rajul Malde said.