Kampala — Many people in Uganda are starting to feel the impact of the international financial crisis.

Already, the prices of basic necessities like food, fuel, transport, shelter and clothing have escalated, while income has remained stagnant.

On the foreign exchange market, the shilling is depreciating against the dollar.

According to the Bank of Uganda, the shilling depreciated at a rate of 13.4% per day during October, reaching 1,903.6 on October 21 from 1,645 in September.

The shilling even reached the 2,000 mark during trading towards the end of October.

When the value of the dollar rises, imports like fuel, construction materials, vehicles and their spare parts become expensive too.

A litre of petrol is now sold at sh2,800 up from sh2,490, diesel goes for sh2,600 up from sh2,380, while paraffin increased from sh2,250 to sh2,350.

The strong dollar also comes against a background of increasing demand by importers who are preparing for the Christmas season.

Ugandans should expect more expensive shopping because, as usual, importers pass on this cost to consumers.

Ivan Kyayonka, the Shell Uganda chairman, says when the shilling weakens against the dollar, Uganda cannot benefit from the dropping international oil prices which actually dropped in October.

"There is a process through which crude oil passes to become a finished product like petrol, diesel, or paraffin at a pump in Kampala. And it is paid for in dollars. In Uganda, the main oil companies import finished products predominantly from the Arabian Gulf.

After procuring the finished product in dollar-rated foreign currency from the Arabian Gulf, they still have to pay, in dollars, for ocean freight, insurance, port handling, clearing, storage at import terminals, pipeline charges in Kenya and transport to Uganda."

Kyayonka said Kenya also implemented a regulation banning trucks with more than three axles (each axle has four tyres.

Trailers with more than 12 hind tyres are not allowed in Kenya).

This meant that trucks which could bring more fuel cannot be used, therefore all businesses that rely on imported inputs have been hit.

The local impact of fuel on food prices is being felt.

According to the Uganda Bureau of Statistics (UBOS), average food prices for selected markets in Kampala from August to October indicated that maize flour went up to sh1,300. from sh1,275 per kilogramme in August.

Millet flour was sold at sh1,645.8, up from sh1, 483.3 while dried beans went for sh1,779.2 from sh1,666.7 a kilogramme. Peas went for up to sh2,150 from sh2,137.5 while groundnuts and simsim went for sh2,691.7 from sh2,566 a kilogramme. Beef rose to sh4,520.8 up from sh4,041.7 while goat meat was sold at sh5,500 from sh5,000 per kilogramme.

Robert Mugisa, a trader at Nakasero market, says food prices rose due to high transportation costs.

"The transporters charge highly. We have to raise prices in order to stay in business."

The International Monetary Fund (IMF) has predicted that Uganda's growth will fall short of the projected 8.1% rate for 2008/09.

"IMF staff estimates economic growth to slow, albeit to a healthy 7-7.5% in the 2008/09 fiscal year," said Roger Nord, the assistant director in the Africa department.

The financial crisis, which continues to dominate headlines, culminated from the mortgage crisis that hit the US last year.

Financial experts explain that financial institutions in the US undervalued the real risk when selling houses on the mortgage market.

Because of the housing market boost, many people were given loans to purchase houses on easy terms. Financial institutions knew that housing prices would continue to rise and, in case clients failed to pay, their houses would be security. The value of the houses would have gone up to pay for the loan.

The mortgage-backed securities were given using borrowed money even to countries outside the US.

When the housing prices plummeted in mid-2006 in the US, most of the borrowers were unable to repay. Consequently, interest terms were reset at higher levels, which accelerated foreclosures.

The US government agreed to bail out some financial institutions but by the time they stabilise the economy, the financial problems will have escalated.