Weak shilling lifts Uganda’s uptake of Kenyan goods

Ugandan buyers of Kenyan goods are reaping a huge trade bonanza from the recent strengthening of the US dollar against the Kenyan shilling and the firming of the neighbouring country’s currency against the greenback that remains the global hub of money conversion.

The Ugandan shilling has since January, gained nearly 11 per cent and 16 per cent against the Kenyan shilling and the dollar respectively, reversing a slide against the currencies that began in mid 2008, raising concerns among Kenyan exporters that their goods would lose their competitive edge in the key foreign market.

Most of the world’s currencies are driven by their central value against the US dollar, and the Kenyan shilling’s slide against the greenback has seen it lose ground to any currency that is holding firm against the US dollar, including that of its biggest export market, Uganda.

Analysts expect the trend to continue in the short term, citing increased inflow of foreign direct investments into Kenya’s western neighbour that is mainly linked to the recent discovery of large oil deposits in the East African nation.

“The Ugandan shilling’s strength is linked to the increase in foreign direct investments which has created a high demand for the currency,” said Joshua Anene of Commercial Bank of Africa.

“This is positive change because a depreciation of the Ugandan shilling against the local currency and major global ones such as the US dollar has been hurting exports,” Mr Steven Smith, the managing director of Eveready East Africa, a Kenya based firm that services the Ugandan market, said.

“A stronger Ugandan shilling also stirs confidence in the ability of our biggest export market to take in more goods,” he said. “Such a shift in foreign exchange position also helps manufacturers to take a longer term position because it helps cool off inflation in the target market and gives Ugandan consumers more spending options.”

On Monday, leading commercial banks traded the Ugandan currency at 2,250/2,255 against the dollar from 2,250/2,260 on Friday, pointing to a continued good run.

“Market sentiment points to a stronger shilling on expected month end inflows. The shilling should trade within a range of 2,245/60 levels today,” Stanbic Bank Uganda said in a market report quoted by Reuters.

Uganda imported goods worth $542 million from Kenya in the year to April, representing 11.4 per cent of the country’s overall exports.

The performance was however slightly lower compared to a similar period of 2009 when Kenya moved goods worth $602 million, equivalent to 12.6 per cent of its total exports.

The dip in the value of exports in the year to April is linked to a steep rallying of the Kenyan shilling against the Ugandan currency that increased the cost of Kenyan goods eroding the country’s competitiveness in its top export market.

Kenya’s exports to Uganda include food, agricultural inputs, ores and minerals, metal products such as steel and iron, petroleum and its products, and liquefied petroleum gas (LPG).

Ugandan buy the imports from Kenya in dollars making the performance of the Uganda shilling critical in the cross-border transactions.