Tanzania and India have agreed on an arrangement that will no longer make the US dollar indispensable in trade between the countries.
The bilateral trade settlement arrangement allows Tanzania and India to use their own currencies (the Tanzanian shilling and Indian rupee) in transactions.
India is one of Tanzania’s biggest trading partners, with data from the Indian High Commission in Dar es Salaam putting the value of trade between the countries at $4.5 billion during the year ending March 2022.
Indian High Commissioner to Tanzania Binaya Pradhan said between April 2021 and March 2022, India’s exports to Tanzania stood at $2.3 billion (about Sh5.3 trillion) and imports from the East African nation were quoted at $2.2 billion (about Sh5.1 trillion).
He said Tanzanian banks and businesses have the opportunity to make full use of the new framework to enable seamless payment in domestic currencies.
This, Mr Pradhan added, is expected to not only help conserve foreign exchange, but also boost bilateral trade. “There is a huge potential for our trade to grow. We are expecting our trade volume to cross $6 billion (Sh13.8 trillion) this year,” he said.
While Tanzania exports minerals, especially gold, and agricultural products to India, the south Asian country exports to the former petroleum products, medicines and engineering goods.
Trade and economist Donath Olomi says the use of local currencies in settlement of trade transactions meant that Tanzania would no longer need to use dollars from its foreign currency reserves.
This will bolster exchange rate predictability, which is an important factor in international trade, he added.
“Unlike the use of dollars, of which we don’t have control over, with the use of local currencies there will be predictability because in the process, we can fix the exchange rate,” Mr Olomi said.
“The use of local currencies will also simplify business transactions and cut bank charges since there will be no need to convert your currency into dollars.”
In a press release posted on its website, the Indian High Commission in Dar es Salaam said the Reserve Bank of India (RBI) had cleared the way for trade using local currencies by allowing authorized banks in India to open Special Rupee Vestro Accounts (SRVA) in Tanzania.
To allow trade under this mechanism, Tanzanian banks have opened SRVA in India after approaching authorized Indian banks that have, in turn, approached RBI for their approval with details of the arrangement.
In March, the Bank of Baroda, which has branches operating in Tanzania, had received RBI’s approval for opening SRVAs for its foreign branches and subsidiaries situated in various countries, including Tanzania, the statement noted.
Indian importers undertaking imports through this mechanism will make payments in Indian rupees which shall be created into the special Vestro account of the correspondent bank of the partner country against the invoices for the supply of goods/services from the overseas seller/ supplier.
On the other hand, Indian exporters undertaking exports of goods and services through this mechanism can be paid their export proceeds in rupees from the balances in the designated Special Vestro Account of the corresponding bank of the partner country.
This arrangement is now applicable to 18 countries, including Kenya, Uganda, Botswana, Mauritius and Seychelles, Fiji, Germany, Guyana, Israel, Malaysia, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka and the United Kingdom.