Tough times as dollar shortage push up commodities’ prices
The weakening of the shilling against the dollar is not just affecting big businesses and investors, it’s raiding consumers’ wallets while scarcity of quality brands is forcing Kenyans to go for cheaper substitutes.
The first time Mr Joshua Ndangi asked for the price of a phone he had been interested in, the seller quoted Sh50,000. That was a month ago. He had intended to buy the phone a few days later but due to other pressing needs, he shelved the plan until last week.
“When I went to the shop, he informed me that the prices had gone up by Sh6,000. I tried to haggle with him but he said that the soaring US dollar had caused the prices of various items to go up,” says Mr Ndangi. “When I called him two days, he couldn’t sell the phone for even a shilling less than Sh59,000. In two days, the price had gone up by Sh3,000.”
Mr Tinega Damasen sells casual and official clothes for men at Gikomba market in Nairobi.
“Sometimes I buy bales or buy grade one items from importers. The clothes that I bought today for resale were quite high price-wise and I am wondering how much to resell them at. For instance, I was buying sweatpants at Sh300 and selling them for Sh500 but this has gone up by Sh200. I have had to hike the prices to customers who are already cash strapped,” he offers.
And as importers opt for cheaper goods to curb rising import bills, shortages are forcing consumers to substitute their preferred brands with available alternatives. Baby products are among those affected. A shopper told the Nation that he has had to substitute some of the products he buys for his baby after realising that certain powder milk, clothing and skin oil brands are not in the market.
Traders say they are having to turn to cheaper goods that require fewer dollars to import to counter the dollar access challenges that have seen banks place caps on amounts one can purchase in a single day.
“For a good number of our members, getting dollars to pay suppliers has been a struggle. So you can’t pay for supplies beyond the cap banks have put on dollars that one can purchase per day, which is about $3,000. If you need to order $10,000 worth of goods from a factory, other countries that avail the dollars fast will be given priority, which means you have to wait longer to get your supplies,” says Importers and Small Traders Association of Kenya CEO Sammy Karanja.
This, he says, has forced traders to raise product prices to continue paying bills and making profits.
For Milkah Nguu, an event planner, the weakening of the shilling against the US dollar means that she will have to spend at least Sh100 more buying flower vases.
“I am new to the business so I buy two flower vases every week. The prices have gone up by Sh100 compared to last month’s prices. The difference might seem insignificant but it is a lot when you are on a tight budget and struggling to get clients,” she says.
These experiences represent those of thousands of other Kenyans who are feeling the weight of the strengthening dollar against the backdrop of a high cost of living and drought. The impact is being felt across different sectors of the economy, affecting the prices of goods and services, including food.
Electricity consumers, for instance, now pay more than double the amount they paid a year ago for forex charge—a cost to cover the impacts of currency depreciation on Kenya Power—when they purchase electricity tokens.
In March 2022, as a small electricity consumer, of the amount you paid to purchase electricity tokens, the forex charge constituted just 4.6 per cent. This has more than doubled to about 9.5 per cent of the total amount you spend today.
Mr Ken Gichinga, the chief economist at Mentoria Economics, notes that for a country that is a net importer like Kenya, a weak currency directly leads to a higher cost of goods, observing that it’s a big cause of concern due to the overall impact on the cost of living.
“For example, a bakery may raise its price of cookies due to the cost of imported wheat going up due to the depreciation. Indirectly, it may be felt through higher cost of transportation,” Mr Gichinga says. “If we can boost local production and diversify our export portfolio, we can gain some currency stability.”
The situation, manufacturers in the country say, could get dire for consumers when the steep depreciation is compounded with a lack of the dollar in the market, which is key for them to import raw materials.
At least 80 per cent of all raw materials used in all of Kenya’s factories are imported, which means that any change in their cost directly affects the price of the final product. And while the Kenya Association of Manufacturers (KAM) says manufacturers absorbed forex fluctuations witnessed last year, they say over the past three months the rate has been higher and they are adjusting prices.
“The change has been less significant in the past but over the past three months, the situation has aggravated. We’ve now gotten to a situation where the US dollar is costing upwards of Sh140 with projections of getting even higher. That will have a big impact on the cost of products,” says KAM Chief Executive Anthony Mwangi.
He warns that ugali consumers could be big casualties of the aggravated situation in the coming days, with millers who are already battling a maize shortage also lacking sufficient dollars to import products.
Manufacturers are now clear that they have to raise product prices, to catch up with other sectors that have already acted.
“Manufacturers operate on thin margins. You’ll have to price your goods according to the cost and the dollar gets into your direct costs. If raw materials become expensive, you pass costs to the consumer,” Mr Mwangi says. “Mwananchi should not only be worried about the cost escalation of the dollar, but also its availability.”
Yesterday, the US dollar was exchanging at 129.45 units against the Kenyan shilling, but businesspeople are sourcing the greenback at upwards of Sh140.
As per the CBK’s official figures, the Kenyan currency has devalued by 4.9 per cent in two-and-a-half months only, faster than the inflation rate.
The shilling is losing value over the hours and had moved from an exchange rate of 129.24 units to 129.45 units against the dollar between Monday and Tuesday.
Between March 14, 2022, and March 14, 2023, the Kenyan currency lost 13.4 per cent of its value against the dollar, which has had a major impact on Kenya’s imports and foreign debts denominated in US dollars.