Economy

Dollar shortage signals price hikes on local goods

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Kenya Association of Manufacturers CEO Phyllis Wakiaga. FILE PHOTO | NMG

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Summary

  • The Kenya Association of Manufacturers (KAM) said on Thursday that the lack of access to hard currency is negatively affecting their ability to settle obligations to overseas suppliers in a timely manner.
  • KAM said this has strained relations with suppliers, at a time competition for raw materials has intensified globally due to rising demand amid lingering supply chain constraints.
  • KAM says the problem is now causing an increase in the cost of doing business and causing panic buying of forex.

Manufacturing firms are facing challenges accessing dollars from local banks to fund capital goods imports, threatening product shortages which could push up consumer goods prices.

The Kenya Association of Manufacturers (KAM) said on Thursday that the lack of access to hard currency is negatively affecting their ability to settle obligations to overseas suppliers in a timely manner.

KAM said this has strained relations with suppliers, at a time competition for raw materials has intensified globally due to rising demand amid lingering supply chain constraints.

“Many of our members have had challenges accessing dollars from their banks to meet their international commitments in a timely manner. This is putting a strain on supplier relations and the ability to negotiate favourable prices in spot markets,’’ said KAM.

“Liquidity in the market is critical to allow businesses to focus on their core activities of cost-efficient production and avoid panic buying…we are calling for the opening up and encouraging interbank trading to increase liquidity in the market.”

KAM says the problem is now causing an increase in the cost of doing business and causing panic buying of forex.

The concerns by manufacturers confirm earlier revelations by US lender JP Morgan, which on March 22 issued a client alert saying that that it was straining to finalise some client transactions in Kenya due to dollar liquidity constraints.

“Clients are informed that due to ongoing issues with sourcing sufficient US dollars liquidity in the Kenyan market in recent days, client requests for repatriation of Kenyan shilling via JP Morgan’s AutoFX program may be delayed,” said JP Morgan n the alert.

‘’Liquidity constraints may result in delayed execution and completion of foreign exchange transactions.”

The situation is compounded by the weakening of the shilling against the dollar, which means that it is costing companies a lot more to buy forex.

It has also meant that firms are hedging against further weakening by stocking up on dollars or holding on tightly to their greenback reserves.

The shilling was exchanging at an average of 115.46 units to the dollar yesterday, having depreciated by 2.1 percent this year.

Demand for dollars locally has gone up significantly this year in line with surging imports following the full reopening of the economy, which has unleashed pent-up demand for both consumer and capital goods.

Liquidity pain

Higher petroleum and food import costs due to the ongoing war between Russia and Ukraine have also strained the country’s forex chest.

Bankers have also attributed the liquidity pain to increased outflows for dividend payments to foreign investors at the Nairobi Securities Exchange (NSE) #ticker:NSE .

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