Kenyan firms struggle to weather S.Sudan forex crunch

Kenyan companies operating subsidiaries in South Sudan are feeling the heat of political and foreign currency volatility in the young country that has seen a South African multinational beer maker contemplates shutting down its factory.

East African Breweries Limited (EABL), during its full-year results announcement last week, reported that its South Sudan business is currently operating at two-thirds below capacity due to limited access to US dollars, the predominant international trading currency.

Equity Bank, which also has operations in South Sudan, last Tuesday said it would write off bad debts incurred in the country as it reported a dip in the subsidiary’s contribution to its group half-year revenue.

“Loan loss provision increased because we are writing off the (bad) loans in  South Sudan,” said Equity Group CEO James Mwangi.

Allan Gray Africa, a fund manager with interests in CfC Stanbic, recently told its investors that its negative return for the quarter to June was partly due to the bank’s business in South Sudan “basically shutting down”.

“CfC Stanbic has a sizeable business in South Sudan, which has been basically shut down by the escalating violence in the county,” the fund said in its quarterly report to investors.

Years of civil war between political factions has resulted in a near economic collapse in the landlocked country, a crisis that is highlighted by fuel shortages and a dearth of foreign currency.

The delicate relationship between its neighbour to the north and warring parties internally has sparked deadly fighting which, coupled with the recent drop in global oil prices, – South Sudan’s main revenue generator– has left its economy bruised.

Locals and business now are feeling the pinch as prices of food and fuel skyrocket.

READ: South Sudan instability hits CfC Stanbic profit

Charles Ireland, EABL managing director, last Friday announced that the beer maker’s business in South Sudan is currently operating at one third of its capacity due to the limited access to foreign exchange.

The brewer operates a depot in Juba, South Sudan’s capital, which it feeds with beer and spirits from its Nairobi plant.

In the last financial year, the unit contributed Sh2.8 billion to the brewer’s full year revenues of Sh64.42 billion, a 47.3 per cent increase from the previous year’s Sh1.9 billion.

Mr Ireland said this contribution would have been more were it not for the biting currency crunch. “The South Sudan economy is not performing very well. Whereas customers are prepared to buy our brands, there has been a slowdown in trading since we cannot get currency out of the country,” he said.

“In the first half of the year South Sudan performed very well for us but things got a bit tough. We are now probably trading at about a third the level that we could if there was available currency.”

SABMiller, the world’s second-largest brewer, this week announced that it had scaled back operations in the country and that it may have to shut down its $50 million (Sh5 billion) factory after just six years in operation.

The brewer uses diesel generators to run its plant and imports all raw materials except water, making the prevailing economic conditions, especially tough for them.

“We cannot locally source enough diesel to keep our operations running...and now we do not have enough sufficient forex to run operations and production,” the brewer’s managing director Carlos Gomes is quoted on AFP.

“The scaling down has already started,” he said, adding that the operation is at a very precarious position.

Kenyan banks which rushed to open subsidiaries in the South Sudan, attracted by its virgin financial services sector, are not having it easy either.

Equity Bank said South Sudan’s contribution to its half-year profit before tax of Sh12.1 billion dropped to 3.8 per cent (or about Sh460 million) from the 4.4 per cent contribution during a similar period last year.

Despite the ongoing currency shocks, South Sudan’s contribution to the lender’s loan book during the period under review grew by 0.5 percentage points to 2.4 per cent of the overall lending.