Strong rand puts pressure on World Cup travel budget

Kenyans planning to travel to South Africa for the Fifa World Cup final will have to revise their budgets upwards following the continued strengthening of the rand against the shilling — a situation that is making the country’s goods and services more expensive.

Market data show that the Kenya shilling has lost nearly 25 per cent of its value against the South African rand in the past year to stand at Sh10.3 for a Rand — the highest levels since January 24, 2008 at the height of the post-election turmoil.

Apart from making it harder for Kenyans to buy South African goods, the situation will force Cup tourists to adjust their budgets upwards to cater for the additional costs resulting from currency fluctuations.

The extravaganza is set for June and a number of local firms including insurance companies and travel agencies are marketing products for Kenyans keen on travelling to South Africa for the global sporting event.

The currency swings may pile pressure on the Cup’s visitors considering that already organisers have cautioned against inflating prices in anticipation of the roaring demand.

Other things remaining constant, such a gathering would be expected to increase demand thanks to the high number of visitors turning up for the popular event on the footballing calendar.

It will be the first time in the history of the event that Africa is hosting.

Analysts said the weakening of the shilling against the rand is linked to the appreciation of the South African unit against the dollar at a time when the Kenyan currency is losing value against the greenback.

“A lot of the rand strength has come from the appreciation of the dollar which has in turn affected other currencies,” said Mr Robert Aloo, a dealer at KCB.

Traders and analysts said that the rand demand is likely to rise as the World Cup tournament approaches and more recovery of the American and the global economy with greater impact on the currencies of countries that will participate at the soccer extravaganza.

Analysts say that more volatility may be seen as speculators target the rand exchange rates.

This has implications for many Kenyans who either intend to travel to South Africa or are trading with the rainbow nation.

It is more expensive to obtain the rand when travelling to SA just as it is expensive to import goods from there.

For exporters, however, they will reap high profits as they get more shillings for a rand.

Kenya’s imports from South Africa include rice, oat, maize, wheat, refined sugar, and edibles like soup, broths, ice cream, yeasts, and baking powder.

Exports to that country include sugar and sugar confectionery, coffee, tea, mate and spices, edible vegetables, and certain roots and tubers.

Kenya imported goods worth Sh68 billion from South Africa in the year to November, according to Central Bank of Kenya data, while exporting goods worth Sh3.7 billion, meaning the trade between the two countries is tilted in favour of the rainbow nation.

This comes at a time when Kenya is finding it hard to push its products in Uganda — its single largest market exports market — because of the weakening of the Uganda unit, making Kenyan products more expensive.

Ms Josephine Sagwa, a dealer at Trade Forex Bureau, said they were experiencing a demand for rand from people intending to travel.

But she also cited that the dollar has been strengthening thereby pushing up the value of the rand since South Africa trades in gold, diamonds and other precious metals that are denominated in dollars.

Economic recovery

The dollar has appreciated because of perception as well as reality that the American and the global economy are recovering after experiencing a major jolt from the financial crisis that started in the US.

As the dollar appreciates, the rand has risen even further with the latest forex reports showing that it stood at about 7.4 rands now against 7.8 rands to the dollar on February 25 this year.

In a recent note to investors, Alex Muiruri of Faida Investment Bank said that some movements in the rand/shilling exchange were attributable to speculation as the Cup date approaches.

Ms Sagwa explained that though travellers to SA might find it expensive buying the rand, those returning after the event might earn more for every rand that they will hold if the rates remain the same.

On the other hand, if the Kenya shilling appreciates strongly against the rand, then they will still be at a disadvantage because they will get a lower amount of local currency.

This means that those who will travel and come back carry the currency will be risking.

While the importers might suffer during the duration of the World Cup, their pain might be lessened after.

The only factor that might work against them is an even stronger appreciation of the dollar since this will cause appreciation of the rand.