Dorothy Nakaweesi
28 October 2008
Kampala — The appreciating US Dollar is expected to hurt the consumers as importers pass on the increased cost of doing business.
The shilling has, in a space of one week, depreciated against the dollar to Shs2, 200, the lowest since 2003, creating panic among consumers over the likelihood of increased cost of imports.
Only a week ago, the local currency was trading at 1700/1750 to the dollar but has since fallen to trading above Shs2, 000 against the dollar, even as Central Bank intervened in the market with $300,000 in an effort to save the Shilling from further decline.
Foreign exchange dealers attribute the strengthening dollar to increased demand from offshore investors. The dollar, last week, strengthened against all major international currencies in what analysts believe is a result of investors regaining confidence in the US economy.
The Governor of Bank of Uganda, Mr Emmanuel Mutebile, said the dollar is rising because of the adjustments in the global economy that are taking place. "There are various rescue operations which are taking place in US and Europe. As a result there has been increased demand for dollars by those who had invested in treasury bills relative to other currencies," he said.
He added that the other reason for the recession is a seasonality matter where many people are now importing in preparation for Christmas and thus putting pressure on the shilling to depreciate.
Now, business executives believe that the unprecedented depreciation of the shilling against the dollar is likely to affect the level of consumption and further affect the profitability of their businesses since Uganda is largely an import economy.
The Country Chairman of Shell Uganda, Mr Ivan Kyayonka, said: "Whatever benefits consumers would have gained from the declining oil prices are going to be eaten up by the rising dollar. The local fuel prices may go up".
The Spokesman of Kampala City Traders Association (Kacita) Mr Issa Sekitto said traders will increase prices of goods to maintain profitability. The dealer said off-shore agents of international investors; Stanbic, StanChart and Citi Bank who are demanding for more dollars.
Mr Henry Kimera, the chief executive officer of Consumer Education Trust (Consent) predicts that consumers are likely to cut down on consumption to circumvent the increase in prices. "It has come to a situation when consumers will have to cut on their Christmas spending or other luxuries. This will bring about a depression thus a clout on the economy," he said.
Air Uganda's Chief Executive Officer Mr Peter De Waal said; "We are studying the situation to see what impact the recession in the shilling will have on our business and probably if things worsen, as the players in the aviation industry will have to call for a meeting to forge a way forward".
Kenya Airways Country Manager Daniel Maundu said the airlines are yet to quantify the impact of the rising dollar on their bottom-line. "It's not like the local flights where there alternatives for stance if one wants to travel to Gulu can opt for a bus instead of traveling by air to cut on the costs," he said.
Mr Eric Van Veen the Chief Operating Officer of MTN Uganda, said: "The strengthening of the dollar will definitely affect us because we source all our products (Sim and Scratch cards) from abroad". He however said that it is too early to be affected. The General Manager of Roofings Limited, Mr Krishnan Naveen said: "The situation is becoming more expensive for us to purchase the raw materials (Steel)".
While local consumers and importers are feeling jittery over the rising dollar, exporters seem to be having a field day. Mr Mutebile said: "Exporters will be extremely happy to see the shilling decline even below 2,000 they will jump with happiness if it went to Shs3,000."
Mr Andrew Rugasira, a coffee processor and exporter said: "Coffee being an international commodity has over the years suffered global recession effects but we anticipate if the situation worsens then the prices will definitely have to go up".
He said it is time for coffee farmers to get happy since they are paid in the local currency, they will certainly receive more money and this means better living conditions.
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