Pwani Oil, the manufacturer of Freshfri, Salit and Fry Mate cooking oils, has temporarily shut down its oil plant due to shortage of raw materials which it blamed on difficulties accessing dollars to pay suppliers on time.
The consumer goods manufacturer said Friday its bankers were only processing half of the dollar orders it requires to pay the suppliers of crude palm oil imports from Malaysia amid stiff global competition.
“Getting sufficient amount of dollars required to support the factory in terms of getting sufficient raw materials is not happening. We are not even running the plant right now because of lack of raw materials [crude palm oil],” Pwani Oil Commercial Director Rajul Malde said.
“We are competing for the same oil with the rest of the world and, therefore, prices are high. Added to that, we can’t pay on time so we don’t get priority in supply.”
Central Bank of Kenya Governor Patrick Njoroge Tuesday last week dismissed concerns by the Kenya Association of Manufacturers (KAM) that persistent dollar shortages were triggering the emergence of a parallel exchange rate where lenders buy and sell well above the printed official rate.
Dr Njoroge maintained the foreign exchange market transacts about $2 billion of the US currency every month, which he indicated was enough to meet demand from importers and companies for payments like dividends.
“At the moment, based on the inflows from banks, we are only able to source between $500,000 and $1 million a day against a requirement of $2- $2.5 million a day. So we are only getting half of what we need, sometimes even less than half,” Mr Malde said.
“Terms [of suppliers] are normally cash against documents. So when they ship a container out, they will send us copy of the documents and we need to pay to get those [original] documents to clear the cargo. Now that’s where the challenge is because if there isn’t enough dollars available, how do you pay and get the documents to clear?”
The situation, he said, has been compounded by stiff global competition for crude palm oil, which has exacerbated after Indonesia tightened its export rules to prioritise domestic needs.
Indonesia accounts for about a third of the global crude palm oil exports, which make up 60 percent of world’s edible vegetable oil shipments — others being soybean, sunflower and rapeseed oil.
That has left Malaysia as the main source of crude palm oil, the main raw material Pwani uses in manufacturing its cooking oil products like Fresh Fri and Salit.
“The situation can only improve if the dollar situation improves. And I am not seeing the dollar situation improving on its own without the central bank intervening and releasing some of the dollar reserves that they are holding to stablise the dollar demand in Kenya,” Mr Malde said.
“We are expecting one consignment [of palm oil] in the middle of this month and then after that there’s no more supply until the end of July. The one that is coming next month is dependent on dollar availability—whether we will be able to pay to release that cargo.”
Kenya’s foreign exchange reserves — which are largely tapped for debt payments and essential government imports such as medicines— last Thursday grew to $8.219 billion, or the equivalent of 4.89 months of import cover, from $8.177 billion a week earlier.
The official forex reserves, as published by the CBK, remain above Kenya’s statutory requirement of four months import cover and 4.5 months cover for the seven-nation East African Community bloc.
In April, KAM said banks had imposed caps on dollar purchases, making it difficult to obtain adequate forex to meet supplier obligations and injuring the ability to negotiate favourable prices in spot markets.
Two industrialists also told the Business Daily at the time they had been forced to seek dollars in advance as the persistent shortage threatened to put a strain on supplier relations.
“If you go to the market and deal with the specific banks according to the rules of the market, [then] that means the banks, yourselves and indeed the dealers are aligned about how the markets operate,” Dr Njoroge said.
“For you, as a customer, you don’t need to know the rules. Just go to the banks and present your information [on] what you are making the payments for, etcetera.”
