Politics and policy
Small traders grapple with forex swings amid global currency wars
Posted Tuesday, November 9 2010 at 17:56
Karimi runs a small business which imports customised wedding and engagement rings from Asia and sells them locally.
However, for most of the second-half of this year, she has had to hold back on importing the rings largely because of the weak Kenyan shilling.
Her clients are by and large drawn from the burgeoning middle class, who desire unique rings for their nuptials, but blend this with cost consciousness.
“I work best when the dollar is low,” Karimi, who is in her early 30s says. “It is a bit quiet now and I haven’t been marketing at all.”
The local currency has lost ground, currently trading at Sh80 to the dollar. At the beginning of the year, the shilling was trading at Sh75 to the greenback, meaning it has lost five per cent.
The effect of this is that the small business people, who do not have the luxury of planning exchange rate swings, have to factor in the fluctuations in their price.
“I cover for exchange rate swings in the profits,” says Karimi, adding that she is sometimes able to get discounts on the fluctuations from her suppliers.
Small businesses that pay little heed to exchange rate swings suffer the consequence of pricing themselves out of the market.
Yet for most small businesses trying to curve a niche for themselves and attempting to eat into the big boys’ market share, price is part of the four essential Ps cited as key to a success. Others are people, product and promotion.
In the scheme of things, not much is highlighted about the plight of small businesses when it comes to their currency transactions.
Small businesses account for a large portion of Kenya’s workforce but it is usually the woes of large listed companies, such as tea firms, that hit the headlines whenever a strong shilling dents their earnings.
“The only time I have benefited greatly was when I bought an incubator at a throwaway price,” says Eric Mudoga, the owner of Wellness Medical Laboratory.
Last year, he bought the incubator at Sh150,000 when the shilling had strengthened against the dollar, yet its price was supposed to be Sh230,000. Mudogo considers this a case of one man’s meat being another’s poison.
“The seller wanted to dispose of it before he incurred any more loses. The next month the same equipment was going for Sh250,000 because the shilling had lost value to the dollar,” he says.