SCARCITY

Tougher times for consumers as dollar shortage limits imports

The low supply of greenback in the market attributed to Russia/Ukraine crisis and Fed rate review in the US

In Summary
  • The persisting dollar shortage is now forcing importers into the black market to up liquidity for their supply. 
  • Yesterday, the shilling hit a new low of 115.87 in the morning against the greenback before closing the day at 115.70. 
A cashier at a local Forex count dollars and shillings
A cashier at a local Forex count dollars and shillings
Image: Fredrick Omondi

Manufacturers are struggling to raise enough dollars at a higher cost to bring in raw materials, an aspect likely to push up the cost of living.

Yesterday, Kenya Association of Manufacturers (KAM) chairperson Mucai Kihanya said members are finding it difficult to mobilize $100,000 from local dealers, straining relationships with external suppliers. 

"We started to experience this tightening end of November last year. We are now forced to accumulate dollars for a number of days in order to meet our supply-demand,'' Mucai said. 

The persisting dollar shortage is now forcing importers into the black market to up liquidity for their supply. 

Already, several importers are now behind their order schedule for a lack of the US currency, a move likely to see a shortage of commodities in the market, activating the supply and demand forces which are likely to hit hard consumers.

James Shimeka, a shoe dealer along Moi Avenue in Nairobi told the Star that he is out of stock and is not sure when he will raise enough dollars to partially pay for his next order in Malaysia. 

''This dollar shortage has relegated me to a broker. I have to source products for my clients from nearby stalls as I continue to gather enough dollars for my next imports,'' Shameka said. 

His neighbour Nick Majale who sells baby shoes and clothes said he managed to get $5,0000 in a week from both legal channels and the black market. 

"The scarcity is real. I have never witnessed this kind of situation in the past five years. Last week, I was forced to buy a dollar at 118. This is madness,'' Majale said.

The shortage is attributed to the strengthening of the greenback on an upward reviewal of the Federal Reserve Rate, the ongoing Russia/Ukraine crisis and the global market supply glitch that followed the Covid-19 disruption. 

Early this week, the International Monetary Fund (IMF) in its World Economic Outlook report said the strengthening dollar is expected to push inflation and debt obligation to the highest levels, especially in developing nations.

The global lender warned of even tougher times ahead as the US considers to continue hiking Federal Reserve Rate in the coming months.

The Fed raised the target for the fed funds rate by a quarter-point to 0.25 per cent-0.5 per cent during its March 2022 meeting for the first time in three years and signaled ongoing rate hikes ahead.

The Fed now sees rate hikes at each of the six remaining meetings this year, with the fed funds rate reaching 1.9 percent by year's end.

The dollar index, which measures the greenback against six main peers, was at 101.58, after jumping 0.58 per cent on Monday and hitting a two-year peak of 101.86.

It has gained 3.3 per cent so far this month, which would be its largest month of gains since November 2015.

The US dollar demand by importers has been rising since the beginning of the year, pushing the shilling to the lowest levels ever. 

Yesterday, the shilling hit a new low of 115.87 in the morning against the greenback before closing the day at 115.70. 

Yet, experts are warning of a further drop as foreign investors continue to exit the country's capital markets due to unpredictable general elections scheduled for August. 

According to the latest analysis of the Kenyan shilling by Forecast Economics, the ongoing Russia - Ukraine crisis, the upcoming general election and the Fed’s increasingly hawkish tone are likely to further pin down the shilling which was weighed down by the Covid-19 pandemic.

"The depreciating trend will be higher than anticipated, amplified by election-related uncertainty, which typically saps confidence, taking the shilling to close to 120 by year-end,'' ForecasEconomics said.

This is expected to pile more pressure on the cost of living in the country which saw inflation rise to 5.6 per cent in March from 5.1 in February mostly due to high fuel prices.  

Consumer prices rose 0.85 per cent month on month in March on a seasonally-adjusted basis, markedly up from February’s 0.41 increase.

FocusEconomics Consensus Forecast panelists expect inflation to average 6.2 per cent in 2022, which is up 0.1 percentage points from last month’s forecast.