Kenyan currency notes

Kenyan currency notes.

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How shrinking Shilling has affected Kenyan businesses and the economy

What you need to know:

  • Some traders along the Kenya-Uganda border are now reluctant to receive payments in Kenyan currency. 
  • Trade with Uganda has since slowed down because of the decline in the value of the Kenyan shilling.

Newcomers to Busia town along the Kenya-Uganda border would be forgiven for thinking they have arrived in President Yoweri Museveni’s territory.

Here, vehicles with Ugandan number plates are all over the place and residents from both countries mingle freely in their daily activities as dictated by the value of the local currencies. 

“Dear customers, we are sorry to inform you that due to the decline in the value of the Kenyan Shilling, we have been forced to increase our drinks, food and rooms’ charges as follows…” reads a notice clearly pasted at the entrance of a popular facility on the Ugandan side of the border. 

The notice at the Vedit Hotel Executive, which is frequented by Kenyans, is replicated at a host of entertainment spots on the Ugandan side of the border. In fact, in some trading centers and petrol stations, traders are no longer enthusiastic to receive payment for their goods and services in the Kenyan currency. 

And because they cannot keep up with the pace of the quick market shifts and the relentless devaluation of the Kenyan Shilling against hard international currencies, including those of neighboring countries, most traders are increasingly opting for payment in their Ugandan currency. 

This new reality is indeed a major shocker to most Kenyans. For decades, Ugandan nationals have scrambled for the Kenyan Shilling, otherwise christened as the “regional dollar”, owing to its powerful value.

Trade with Uganda, historically the biggest trading partner with Kenya compared to the other East African Community (EAC) member states, has since slowed down because of the decline in the value of the Kenyan shilling.

The once booming cross-border trade between the countries continues, but not steadily and to the advantage of the Ugandan traders. 

The worst hit towns are Busia town, which serves as the Busia County Headquarters, the second largest border town of Malaba, and Lwakhakha among others. And here, the decline of human traffic from Kenya to Uganda to buy merchandise is glaring. 

The Mayor of Busia town (Uganda), Amin Sadiq decries the loss of business as many of the popular hotels, bars and restaurants in Uganda have closed down: “For some reason, the Kenyans- who have for long patronized our hospitality facilities – have a low purchasing power. Our bars and hotels that were always full, with the clientele almost exclusively from Kenya, have since closed or are operating minimally.”

The Uganda National Chamber of Commerce and Industry (UNCCI), Busia branch Chairman, Mohammed Hussein, concurs that the situation is so bad to the extent that many multi-million shilling establishments on both sides of the border have collapsed and others are under the threat of going under as the power of the Kenyan Shilling continues to crumble each passing day.

“At the peak of its power in Uganda, the Kenyan Shilling used to exchange steadily at between USh37/7 and USh40; today it has dropped to as low as USh25, or sometimes as low as USh24 with devastating consequences on commodity, consumer and any other business transactions that require hard cash,” observes Hussein.

The depreciation of the shilling notwithstanding, the currency is still acceptable in the Ugandan market, as opposed to the Ugandan currency which remains unacceptable in Kenya.

To transact any business on the Kenyan side, Ugandan currency holders must change their money to the local currency. 

Nonetheless, the current situation has seen the Kenyan traders paying more than previously for goods and services, thereby putting them at a great disadvantage as compared to their Ugandan counterparts.  

Because of the high cost of virtually everything on the Kenyan side, the Chairman the Kenya National Chamber of Commerce and Industry (KNCCI), Busia County, Sylvanus Abungu, observes that thousands of Kenyans who used to cross the border to Uganda to purchase goods at friendly prices can no longer do so:

“The problem at hand is a highly shrunken circulation of money in the country’s economy. Counties particularly along the borders like Busia, that have for ages leveraged on international and regional trade, are hardest hit.” 

Over the decades, lifestyles of residents of Busia – on both sides – have curiously been dictated by the affordability factor and not national boundaries.

Owing to friendlier house rent, food and other costs, for instance, scores of Kenyan teachers, medical staff and civil servants live on the Ugandan side and cross the border every morning and evening to and back from work. This trend is now proving costly.  

According to Busia County’s KNCCI boss, there is a steady decline amongst thousands of Kenyans who used to cross the border and revel in Uganda’s bars in Busia and Malaba. This is despite the price hikes in Kenya because of Value Added Tax (VAT) on virtually all alcoholic drinks.

“These developments have never been experienced before in the history of the Kenya-Uganda cross border trade before, as the Kenya shilling’s power always remained high right from the 1970’s coffee boom. It is a new phenomenon that we don’t know where it is going and when it will end,” says Abungu.

Noting that Busia County is similarly losing out on cross-border business, the Governor, Dr Paul Otuoma, points out that his administration is engaging development partners to help set up parks among other initiatives, including leveraging an estimated 3,000 trucks that pass through Busia and Malaba borders to the neighbouring country. Dr Otuoma’s deputy, Arthur Odera, maintains that any resultant profits from the border trade “ought to benefit area residents”.  

Only a fortnight ago, Uganda’s First Deputy Premier and Minister for East African Community (EAC) Affairs, Rebecca Kadaga and Peninah Malonza, the Cabinet Secretary for the EAC, signed on behalf of their countries a deal for a joint venture of undertaking dual carriage roads between Kisumu and Eldoret, both in Kenya, and Mukono in Uganda. 

The move is aimed at reducing congestion on the Northern Corridor, which is experiencing increasing volumes of trade. The pact also proposes the creation of two new border routes in Busia, at Muluanda in Samia subcounty and Buteba on the Ugandan side.

Experts believe the expansion of border points will greatly improve cross border trade and cashflow, irrespective of the currency. 

Says KNCCI Lake Region Counties Economic bloc spokesman, Herman Kasiili: “All these developments are of a major concern to us in the business and industry sectors. The only major cross-border businesses that remain fairly constant are the heavy duty cargo trucks transporting cargo and fuel into Uganda and beyond. But all this could change for the better – thanks to the latest intervention from Nairobi and Kampala.”