Economy

Kapa Oil operates below capacity on lack of dollar

kapa

Detergents from Kapa Oil Refinery, Kenya, being reloaded into a Tanzanian registered truck at the Namanga border crossing. PHOTO | ANTHONY KAMAU | NMG

Kapa Oil Refineries has become the second edible oil producer after Pwani Oil to reveal how the dollar shortage in the midst of raw material rationing has disrupted its manufacturing.

The maker of a range of cooking oil and soap brands like Rina vegetable oil as well as Toss detergents said on Tuesday it was operating below its capacity at its refineries, citing the dollar shortage and constraints in the global supply chain for crude palm oil.

It said it was staring at further disruption of its operations if the situation is not arrested.

"Our operations have been hampered due to the dollar scarcity and inability to access raw materials," Kapa Oil Refineries marketing manager Sid Shah told the Business Daily in an interview.

"This could lead to a fresh round of hike in prices for edible oils," warned Mr Shah whose firm also makes Toss and Prestige brands of soap and margarine.

Kapa Oil's announcement comes days after Pwani Oil -the manufacturer of Freshfri and Fry Mate cooking oils - on Monday also said it had temporarily frozen part of its operations due to a shortage of raw materials that it blamed on difficulties accessing the greenback to pay suppliers on time.

ALSO READ: Pwani Oil selling local goods in dollars on currency woes

The announcements signal the rise of more manufacturers who are facing challenges accessing dollars from local banks to fund capital goods imports, threatening product shortages which could push up consumer goods prices. Some are now considering selling local products in dollars.

Industrialists through their lobby, the Kenya Association of Manufacturers (KAM), have in recent months raised the alarm over the dollar shortage and their struggles to settle obligations to overseas suppliers in a timely manner.

KAM has said the lack of hard currency is negatively affecting their ability to settle obligations to overseas suppliers in a timely manner. It 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 last week noted that its members were buying the dollar at more than Sh120 compared to the then central bank’s official exchange rate of 116.81 units, stoking fears of a parallel exchange rate market.

Central Bank of Kenya Governor Patrick Njoroge last Tuesday however rubbished concerns that persistent dollar shortages are triggering the emergence of a parallel exchange 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 corporates for payments like dividends.

ALSO READ: Pwani Oil closes plant, blames lack of dollars

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 after a lull tied to Covid-19 disruptions.

Edible oil importers have been left with no option but to pay top dollar for edible oils with inventories of alternatives already running low due to adverse weather and Russia’s invasion of Ukraine.

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.

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