Business Daily (Nairobi)
Allan Odhiambo
11 October 2007
A dilemma is facing exporters of coffee, tea and horticultural products over which currency to peg their trading on following the erratic behaviour of the dollar that has left them smarting from foreign exchange losses.
The exporters have for decades traded in the dollar but because their main market is Europe, there appears to be a natural fit with the Euro.
"Most of their produce ends up in Europe and it would only be viable to take up the Euro which is quite stable. It would be the viable option because it is gaining broad acceptance in the world, including the influential crude market," Brian Muigai, a forex dealer with the NIC Bank said.
Only last week, Agriculture permanent secretary Romano Kiome urged exporters to ditch the dollar to cushion themselves against huge losses in foreign exchange that threatened the future of their investments.
The woes of the dollar have also been compounded locally where a strengthening shilling has further eroded the fortunes of exporters.
Despite this, some exporters and analysts have warned against a rush switch from the dollar, saying it could work against the industry.
"It would be a naive to dump the dollar especially for those in the coffee industry because worldwide, the commodity is traded in dollars just like oil.
Any shift to another currency would be rejected vehemently and the effects on trade would be serious," warned Dirk Sickmueller who chairs the Kenya Coffee Traders Association (KCTA).
A senior forex dealer with Kenya Commercial Bank (KCB), Robert Aloo, said the move would be premature because the state of the international currency is likely to transform soon.
"The strategy of moving to a new currency in place of the dollar would be a shortlived one because the current shake ups in the US economy that supports the dollar may soon come to an end", he said.
The head of Forex and Treasury at the Bank of Africa Phillip Wambua said exporters would be best safeguarded against foreign exchange losses through hedge contracts.
"It is unwise to make a big decision such as currency change on such a volatile currency market. Hedging would be the best protection against exchange rates that keeps changing by the day on diverse fundamentals," he said.
Analysts have linked the shake up in the US economy to woes in the sub- prime mortgage sector where defaulters have rushed to other sectors of the economy to source money to finance their schemes. As a result of this there has been instability in other areas such as household expenditure, hence the liquidity problems.
Last month, neighbouring Sudan ditched the dollar in favour of the euro, prompting outcry from several humanitarian organisation in Kenya who claimed the interests there would suffer foreign exchange losses.
The move by Sudan's central bank was, however, largely informed by the need to minimise the risks of US sanctions. The US imposed sanctions on Sudan in 1997 accusing it of abetting terrorism.
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