Barely a week after the Kenya Association of Manufacturers (KAM) warned that most of its members are facing challenges accessing the dollar, Pwani oil, the manufacturer behind the Salit Oil, Mpishi Poa, and Fresh Fry cooking oil products has announced a temporary halt of its operations citing dollar shortage which has hindered it from sourcing key commodities.
With sufficient dollars in reserves, Kenyan economist, Ken Gichinga from Mentoria economics told Capital FM Business that the shortage is being occasioned by pent-up demand for the dollars which has led to the depreciation of the Kenyan shilling.
The worst-case scenario, according to Gichinga is that many firms will shut down resulting in job losses escalating due to manufacturers struggling to meet their obligations.
“If the situation remains unresolved, the business community involved with importation (eg manufacturers, car dealers), will be largely affected and might lead to further closure and job losses,” she
Gichinga’s remarks echo those of the CBK Governor who during the MPC post monetary briefing noted that “The [forex] market generates and distributes something like USD2 billion every month. If you have somebody or a sector which is importing USD 90 million or USD 100 million, I think that’s nowhere near the USD 2 billion that we are putting out there.”
Gichinga said in order to minimize the crisis, businesses should explore reducing their import bill and incorporate locally produced products into their business model
KAM Chairperson Mucai Kunyiha on May 30 said manufacturers have been forced to plan for foreign currency payments by purchasing foreign currency in advance resulting in an increase in working capital.
Besides, KAM decried that the delays in acquiring the requisite USD for imports are impacting relations with suppliers, which have been built over time, with some now requiring more expensive Letters of Credit to transact.
While the official exchange rate published by CBK is the rate of Ksh116, manufacturers claim they part up to up to Ksh120 per dollar, a figure which affects their cashflows and even forces them to buy most of the dollars in advance, thereby affecting their daily operations.
But in response, CBK’s boss said, “They, (manufacturers) should understand that they are small in that sense and sort of go to the market like everyone else. There are no favorites in the market. Follow the rules of the market and everything will be okay,” Njoroge had previously remarked.
According to Gichinga, the regulator’s adamance is merely meant to “project confidence to international investors by ensuring they execute their mandate on price stability.”
Kenya is already battling rising inflation which has heightened the cost of living with fuel and food prices rising.
According to the Stanbic Bank Purchasing Managers’ Index (PMI), Kenya’s business confidence hit a record low for the third month running in May with the PMI index dropping to 48.2 from 49.5 in May.
The costs of producing goods and services remained at an 8-year high driven by rising fuel prices, higher taxes, and input shortages which forced many firms to scale back on output and employment levels.
The rise in output prices, in turn, led to a reduction in domestic demand as clients cut back on spending due to the rising cost of living.
By Capital fm