Weak shilling hits imports, consumers to pay more

The local currency has depreciated by approximately 8%, trading at an average 110.3 yesterday

In Summary

•Kenya is a net importer mainly from China and India.

•Both raw material and finished goods imports have been affected by a weak shilling as local traders spend more.

A cashier at a local forex bureau counts dollars and shillings/
A cashier at a local forex bureau counts dollars and shillings/

Commodity prices are set to rise as the continued weakening of the Kenya shilling against the US dollar pushes up the cost of imported raw materials.

The cost of imported finished products including processed foods, household goods, electric and vehicle components and building materials has also shot up.

According to financial expert and economist, Mihr Thakar, demand for the dollar is emerging as the global economy rebounds and asset prices and inflation reach "seemingly peak levels".

The local currency has depreciated by approximately eight per cent , trading at an average 110.3 yesterday, Central Bank of Kenya data shows.

This is the lowest so far this year, having fallen in recent months from an average of 109.24 in August. It was averaging 101.09 in January 2020.

It reflects an eight per cent nominal increase in the price of imported raw materials, the Kenya Association of Manufacturers (KAM) said yesterday.

For instance in the metal sector where Kenya has for years imported raw materials for steel products, it makes the sector subject to changes in global prices.

The price of imported raw materials increased by at least four percent on account of the exchange rate depreciation, KAM said.

“The weakening of the Kenya shilling against major global currencies has resulted to an increase in the cost of imported raw materials, among other imports,” KAM chief executive Phyllis Wakiaga said.

Some of key bulk imported raw material includes clinker that is used as the binder in cement manufacturing.

Kenya also imports construction material for value addition, machinery, agricultural raw material imports, textile value addition items, steel among others.

Apart from raw material, the overall cost of imports has been increasing on the weaker shilling with Kenya remaining a net importer mainly from China.

Last year, the country spent Sh1.64 trillion on importing goods from the international markets, the Economic Survey 2021 shows.

China was the top source accounting for Sh361.4 billion of the total spend, followed by India where the country had an import bill of Sh188.5 billion, an increase from Sh178.8 billion the previous year.

Asia remained the leading source of imports accounting for 63.4 per cent of the total import expenditure in 2020.

The impact of the weak shilling now adds to the current high fuel and electricity charges, which are threatening to push up the cost of living, with inflation projected to break the government’s ceiling target of 7.5 per cent.

It rose to an 18-month high in August, at 6.57 per cent, mainly driven by food and non-alcoholic products, transport, housing, water, electricity, gas, and other fuel commodities indexes, Kenya National Bureau of Statistics notes.

The Consumers Federation of Kenya (Cofek) wants the government to review fuel prices and numerous taxes to ease inflation.

“We must bring down the cost of living which is escalating,” Cofek Secretary-General Stephen Mutoro said.

Yesterday, manufacturers said they have strived to absorb the increased cost of production, as much as they can, before passing it down to consumers, which is now imminent.

“There are limits to the extent to which manufacturers can bear such costs. As such, we expect to see increases in the cost of some products as local industries strive to remain afloat,” Wakiaga said.

She called on the government to reduce the cost of doing business in the country by reducing taxes on fuel, among other products and implementing stable and predictable fiscal and regulatory policies.

This, she said, is particularly crucial in cushioning Kenyans and industry from the harsh economic environment occasioned by the Covid-19 pandemic.